
June 10, 2024
What Is the Supertrend Indicator?
The Supertrend indicator is a straightforward trend-following tool built to ride momentum and cut noise. If you’re staring at a price chart wondering if the trend’s got legs or it’s just twitching—Supertrend gives you a cleaner signal.
Created by Olivier Seban in 2009, it overlays directly on price and turns green in uptrends, red in downtrends. Its simplicity makes it a go-to for traders who want fewer “maybes” and more “this-is-what’s-happening.”
How It Works
The Math Behind the Signal
At its core, Supertrend uses:
- ATR (Average True Range): Measures market volatility
- Multiplier: Adjusts sensitivity (default is 3)
From this, it builds two bands:
- Upper Band:
(High + Low)/2 + (Multiplier × ATR)
- Lower Band:
(High + Low)/2 - (Multiplier × ATR)
The price breaks these bands and the trend flips—clean and easy.
Reading the Signal
- Green line below price: Uptrend, buy signal
- Red line above price: Downtrend, sell signal
And yes, it flips when the trend flips. Not subtle, but that’s the point.
How to Use It
Standard Settings
- Period: 10
- Multiplier: 3
These settings strike a balance between noise filtering and timely signals. You can tighten for scalping (e.g. 7, 2) or widen for swing trading (14, 4).
Timeframes
- Intraday: 5–15 minute charts
- Swing/Position trading: Hourly, daily, or weekly
The indicator adapts. Just remember: shorter timeframes = more noise.
Stop Loss Placement
Use the Supertrend line as your stop:
- Long trade: Stop just below the green line
- Short trade: Stop just above the red line
It moves with price, so it doubles as a trailing stop.
Strengths of Supertrend
- Clear signals: Color-coded and unmistakable
- Volatility aware: ATR makes it dynamic, not static
- Multi-asset: Works on stocks, crypto, FX—whatever
- Easy to overlay: One line, one job
Weaknesses You Can’t Ignore
- Lagging nature: It reacts, it doesn’t predict
- False signals: Especially in sideways markets
- Parameter tuning: Needs testing per asset and timeframe
- No trend strength info: Direction only, not momentum
Don’t trade it in a vacuum. Combine with other tools like RSI or moving averages for confirmation.
Supertrend + EMA Crossover: A Clean Combo
This setup filters out fakeouts:
- Buy Signal: Supertrend turns green and 5 EMA crosses above 20 EMA
- Sell Signal: Supertrend turns red and 5 EMA crosses below 20 EMA
It’s simple and surprisingly effective for trend traders. This type of dual confirmation is often used in top swing trading screeners.
Advanced Use: Multiple Time Frame Confirmation
- Step 1: Confirm trend on higher timeframe (e.g., daily)
- Step 2: Trade on lower timeframe (e.g., 15-min) in the same direction
This filters out noise and reduces false entries.
Real Talk: When Not to Use It
Supertrend struggles in:
- Range-bound or sideways markets
- High-chop, low-volume conditions
- Assets with erratic volatility spikes
If the chart looks like a heart monitor, don’t bother.
Best Practices
- Don’t ignore stop loss placement.
- Avoid trading against the line color.
- Use it with other indicators.
- Backtest your settings per asset.
The indicator is a scalpel, not a hammer. Precision matters.
Supertrend vs Other Indicators
Feature | Supertrend | Moving Average | RSI |
---|---|---|---|
Trend Direction | ✅ | ✅ | ❌ |
Trend Strength | ❌ | ❌ | ✅ |
Volatility-Based | ✅ (via ATR) | ❌ | ❌ |
Noise Filtering | Moderate | High (depending on period) | Low |
Entry/Exit Simplicity | ✅ | Moderate | Moderate |
Use it for clarity, not complexity.
Final Word
The Supertrend indicator won’t predict the market. No tool does. But it does filter out clutter, spotlight the trend, and offer structure to your trades.
In a sea of noise, that’s often enough.
Want smarter entries, tighter exits, and less screen-staring? Add Supertrend to your toolkit—but don’t stop there. The best traders use it like seasoning—not the main course.