On This Page
Key Takeaways
- Supertrend is a trend-following overlay that plots one line above or below price, built from an Average True Range band.
- Raw bands sit multiplier × ATR from the bar midpoint. The final levels also depend on the previous bands and previous close.
- The active band locks like a trailing stop and only switches sides when price closes across it, a mechanism similar to parabolic stop-and-reverse.
- The common default is an ATR length of 10 with multiplier 3, the settings the example runs with Wilder ATR and completed-bar decisions.
- Use the up or down state as a defined filter, or use a flip as a trigger within a complete entry, sizing and exit rule.
What is the Supertrend indicator?
The Supertrend indicator is a trend-following overlay that plots one line below or above price, built from bands set a multiple of Average True Range (ATR) away from each bar’s midpoint. The active line trails price like a stop and switches sides only when a close crosses it, so the indicator carries an up or down state with a defined flip event.
The state selects one final band to plot. Traders use that state as a directional filter or connect the flip to a defined entry or exit.
How is Supertrend calculated?
Midpoint = (high + low) / 2. Raw upper = midpoint + 3 × ATR. Raw lower = midpoint − 3 × ATR.
These are offsets from the midpoint. The plotted line sits at its own distance from the close, because the final band carries from earlier bars.
Formula
Raw upper = midpoint + m × ATR; raw lower = midpoint − m × ATR. Carry or reset each final band using the previous bands and previous close. A prior down state turns up when close > final upper; a prior up state turns down when close < final lower. Plot final lower in the up state and final upper in the down state.- (high + low) / 2 is the bar midpoint, sometimes written hl2, used as the band center.
- Wilder ATR(10) starts from the mean of 10 true ranges and updates as prior ATR + (current TR − prior ATR) / 10.
- The multiplier scales each raw band’s distance from the midpoint. The final active line’s distance from the close also depends on the carried state.
- Once set, an uptrend line never moves down and a downtrend line never moves up until price closes through it, so the line trails like a stop.
Worked Example
Use Wilder ATR(10) and multiplier 3. A completed bar has high $101, low $99, close $100 and ATR $2. The state is up, the final lower band is $94 and the final upper band is $106. The next bar opens at $94, reaches high $94 and low $91, and closes at $92.
- Initial midpoint: ($101 + $99) / 2 = $100; raw bands: $106 and $94
- Next true range: max($94, $100) − min($91, $100) = $9
- Next ATR: $2 + ($9 − $2) / 10 = $2.70; next midpoint: ($94 + $91) / 2 = $92.50
- Next raw bands: $100.60 and $84.40; final bands after carry rules: $100.60 and $94
- The $92 close is below the final lower band at $94, so the state turns down and the plotted line becomes $100.60
The next close at $92 switches the state from up to down. The new plotted value is the final upper band at $100.60, the new trailing stop for a short.
Supertrend band carry and flip rules
Use the raw upper when it is below the previous final upper, or when the previous close exceeds that previous upper. Otherwise retain the previous upper.
Use the raw lower when it is above the previous final lower, or when the previous close is below that previous lower. Otherwise retain the previous lower.
From a down state, switch up when the current close exceeds the final upper. From an up state, switch down when the current close falls below the final lower. Equality retains the previous state under these strict crossing rules.
Plot the final lower in the up state and the final upper in the down state.
Supertrend flip example
Start with close $100, ATR $2, final upper $106, final lower $94 and an up state. The next bar has high $94, low $91 and close $92.
Its true range is $9, including the previous $100 close. Wilder ATR(10) becomes $2.70. The $92.50 midpoint gives raw upper $100.60 and raw lower $84.40.
The final upper becomes $100.60 while the final lower retains $94. The $92 close switches the state down, selecting the $100.60 upper line.
On the chart, the eighth bar closes at $94, below the $94.54 carried lower band, and the line flips to the $105.40 upper band.
Supertrend trading rules and settings
Choose whether the state controls allowed trade direction or the flip activates an order. Specify the completed decision bar, entry, invalidation, position size and execution instruction. The line trails like a stop: after a flip, Options Flow shows whether large orders are taking the new side, and the Options Profit Calculator prices each structure at the target and at the line.
Keep the input price series, bar interval, ATR smoothing and initialization consistent when comparing results. At a fixed ATR, a larger multiplier increases the raw midpoint offset. Start both charts on the same bar, since each final band carries from the bars before it.
Limitations of Supertrend
- Set the multiplier for the lag you accept. A flip needs a close beyond the carried band, so it arrives after the move has started, and a larger multiplier sets the raw bands farther from the bar midpoint, so the flip needs a bigger move.
- When price chops sideways, the close crosses the bands back and forth and flips the state both ways. Stand aside, or widen the multiplier, while price ranges.
- The line depends on the interval, ATR smoothing, seed, multiplier and initial state. Match all five before you compare your flips with another platform’s.
- Decisions use completed closes, so price already sits past the band when the flip confirms, as the example’s $92 close sits below the $94 line. Budget the exit beyond the line.
- The state gives direction only. Set the target from the price structure and judge trend strength with a tool such as the ADX.
Bottom line
Supertrend turns an ATR band into one trailing line and a clear up or down state. Fix the interval, ATR smoothing, multiplier and initial state, use the state as a filter or the closing flip as a trigger, and pair it with a defined stop and position size.
Clear answers
Frequently Asked Questions
Sources and Further Reading
How entries are sourced, calculated and updated: editorial methodology.