Overlays · Indicator
Supertrend is an ATR-based line that sits below price in uptrends and above it in downtrends, flipping side and colour when the trend reverses.
Overview
Supertrend is a trend-following overlay built on Average True Range. It plots below price in uptrends, where it acts as support, and above price in downtrends, where it acts as resistance. It flips side on trend reversal and changes colour accordingly, giving an unambiguous read on which direction the indicator currently considers dominant without any threshold to interpret.
The line is built by taking the midpoint of each bar and offsetting it by a multiple of ATR. Because ATR measures recent volatility, the offset is wide when the market is moving a lot and narrow when it is quiet, so the same settings adapt across instruments and regimes without retuning. That volatility scaling is the main reason Supertrend behaves more sensibly than a fixed-percentage trailing stop.
A ratchet keeps the line from loosening. Once the trend is up, the plotted band can only move higher or stay flat; it never drops back down, even if volatility expands. The trend flips only when price closes through the active band, at which point the line jumps to the other side of price and the ratchet restarts in the new direction.
How it is calculated
For each bar, the midpoint of the high and low is offset by the multiplier times ATR to produce a basic upper and lower band. Those raw bands are then ratcheted: the upper band can only fall while the trend is down, and the lower band can only rise while the trend is up, so the active band tracks the best level reached so far.
The trend state flips when a close crosses the active band. In an uptrend the lower band is drawn and acts as support; in a downtrend the upper band is drawn and acts as resistance. The chart renders the two directions as separate series so the flip leaves a gap rather than a vertical line.
Mid = (high + low) / 2 Basic upper = Mid + Factor * ATR(Length) Basic lower = Mid - Factor * ATR(Length) Bands are ratcheted so they only tighten in the direction of the current trend Supertrend = lower band while the trend is up, upper band while the trend is down Trend flips when the close crosses the active band
Inputs
How to read it
Read the position and the colour together. A green line below price says the indicator is in an uptrend and marks the level at which that assessment would change. A red line above price says the opposite. There is no partial state, so Supertrend is a regime label rather than a strength gauge.
The distance between price and the line indicates how much cushion the current trend has. A line far below price in an uptrend means a substantial decline would be needed to flip it, which typically happens after a volatile advance. A line close to price means the flip is near, either because volatility has contracted or because price has pulled back towards it.
Many traders use the line as a trailing stop level, since the ratchet mechanism gives exactly that behaviour: it never loosens while the trend holds, and it exits on a close through the band. Combining it with a separate trend-strength measure helps avoid taking every flip in a sideways market.
Signals to look for
A close through the active band flips the line to the other side of price and changes its colour. This is the indicator's primary signal and is used both as an exit for the old direction and a candidate entry for the new one.
In an established trend, a retracement that reaches the line without closing through it and then resumes is treated as a continuation reference, with the band providing an objective invalidation level.
Traders often require a higher-timeframe Supertrend to agree with the trading-timeframe one before acting on a flip, which filters out many of the whipsaws that occur when the two disagree.
Limitations
Frequently asked questions
Supertrend is an ATR-based line that sits below price in uptrends and above it in downtrends, flipping side and colour when the trend reverses.
Read the position and the colour together. A green line below price says the indicator is in an uptrend and marks the level at which that assessment would change. A red line above price says the opposite. There is no partial state, so Supertrend is a regime label rather than a strength gauge.
Trend flip: A close through the active band flips the line to the other side of price and changes its colour. This is the indicator's primary signal and is used both as an exit for the old direction and a candidate entry for the new one.
In range-bound markets Supertrend flips repeatedly near the middle of the range, and each flip is a losing signal. It has no built-in way to detect that no trend exists.
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