Supertrend

An ATR-based trend-following overlay that plots a single line above or below price to track the prevailing direction.

What it is

Supertrend is a trend-following overlay that draws one line on the price chart. The line sits below price during an uptrend and above price during a downtrend, flipping sides when price closes through it. It uses the Average True Range (ATR) to set how far the line trails from price, so its distance adapts to volatility. It is a lagging, reactive tool that describes the current trend state rather than predicting future movement, and like all indicators it cannot forecast price.

How it works

Supertrend starts from a midpoint of each bar (the average of the high and low, often written hl2) and adds or subtracts a multiple of ATR to build an upper and a lower band. The ATR multiple (the "factor") controls band width: higher volatility pushes the bands further from price. The indicator then locks in whichever band is active based on how price has been closing. When price closes above the upper band, the trend is read as up and the lower band is shown; when price closes below the lower band, the trend flips to down and the upper band is shown. The visible line ratchets in the trend's favor and only switches sides when price decisively closes past it, which is what produces the characteristic stair-step line and the flip points.

How traders read it

• Line below price (often colored green) is commonly read as the indicator being in an uptrend state; line above price (often red) as a downtrend state.
• A flip from one side of price to the other is the indicator's trend-change event — traders watch these flips but treat them as descriptive of a state change, not as instructions to act.
• The gap between price and the line reflects current volatility via ATR: a wider gap means the line is trailing further away, a tighter gap means it is closer.
• Some traders use the line as a moving reference level for the active trend and note when price approaches or pulls back toward it.
• Because the line only flips on a decisive close through it, readings are confirmed after the fact rather than in advance — no indicator is predictive, and all trading carries risk of loss.

Common settings

A factor (ATR multiplier) of 3.0 with an ATR period of 10 is a widely used default. Lower factors (e.g. 1.5-2) make the line flip more often and hug price more closely; higher factors (e.g. 4+) flip less often and sit further away. Shorter ATR periods react faster and are noisier; longer ones are smoother and slower.

Strengths

• Gives a single, easy-to-read visual of the current trend state directly on the price chart.
• Adapts its distance from price to volatility through ATR, so it widens in fast markets and tightens in calm ones.
• Clear, rule-based flip points make it simple to define and backtest a consistent interpretation.
• Works on any market and timeframe since it is built only from price and ATR.

Pitfalls to watch

• It lags. Flips happen after a move is already underway, so the trend-change event arrives late relative to the turning point.
• It tends to perform poorly in ranging or sideways markets, where price chops around the line and produces frequent flips back and forth (whipsaws).
• Output is highly sensitive to the factor and ATR period — different settings can show opposite trend states on the same chart, so behavior should not be over-fitted to past data.
• It reacts only to what has already happened and offers no forecast; a current trend reading can reverse on the next bar.
• Used alone it gives no context on momentum, volume, or higher-timeframe trend, so many traders combine it with other tools rather than relying on it in isolation.

Pine v6 example

//@version=6
indicator("Supertrend Example", overlay = true)

atrPeriod = input.int(10, "ATR Period")
factor    = input.float(3.0, "Factor")

[supertrend, direction] = ta.supertrend(factor, atrPeriod)

// direction < 0 means uptrend (line below price), > 0 means downtrend (line above price)
upTrend   = direction < 0 ? supertrend : na
downTrend = direction > 0 ? supertrend : na

plot(upTrend,   "Up Trend",   color = color.green, style = plot.style_linebr)
plot(downTrend, "Down Trend", color = color.red,   style = plot.style_linebr)

Pro tip: Some traders read Supertrend on a higher timeframe to gauge the broader trend state, then look at a lower timeframe for context rather than acting on every flip, and they often confirm it with momentum or volume tools, since Supertrend can whipsaw heavily in ranging markets. This is educational context, not a recommendation to trade, and no indicator can predict price.

Educational only — not financial advice, not a recommendation to trade. No indicator is predictive; trading involves substantial risk of loss.