What is the Supertrend Indicator? Definition, Formula, and Example
The Supertrend indicator is a trend-following overlay that plots a single line above or below price based on Average True Range, flipping sides when price closes through it to signal trend direction.
What Is the Supertrend Indicator?
The Supertrend indicator is a price overlay that displays one continuous line — green and below price during uptrends, red and above price during downtrends. The line is constructed from the midpoint of each bar's high-low range, offset by a multiple of the Average True Range (ATR). It is binary by design: at any moment, the market is either in "trend up" or "trend down" mode, with no intermediate state. Developed by Olivier Seban and popularized by Indian trading communities, Supertrend has become one of the most-used trend filters on TradingView alongside the moving average.
How the Supertrend Is Calculated
The indicator requires two inputs: an ATR lookback period (default 10) and a multiplier (default 3). Calculation proceeds bar-by-bar:
Step 1 — Compute basic upper and lower bands:
- Basic Upper Band = (High + Low) / 2 + Multiplier × ATR
- Basic Lower Band = (High + Low) / 2 − Multiplier × ATR
Step 2 — Apply trailing logic to produce the final bands:
- Final Upper Band = min(Basic Upper, previous Final Upper) if previous close ≤ previous Final Upper, else Basic Upper
- Final Lower Band = max(Basic Lower, previous Final Lower) if previous close ≥ previous Final Lower, else Basic Lower
Step 3 — Determine Supertrend value:
- If the previous Supertrend was the Upper Band and current close ≤ current Upper Band → Supertrend = Upper Band (downtrend continues)
- If the previous Supertrend was the Upper Band and current close > current Upper Band → Supertrend = Lower Band (flip to uptrend)
- Symmetric rules apply for flipping from Lower Band back to Upper Band
The trailing logic ensures the line moves only in the direction of the trend — it ratchets up in uptrends and down in downtrends, never giving back ground until a flip.
Worked Example
SPY closes at $580 with ATR(10) = $5.20 and the default multiplier of 3.
- Midpoint: ($582 + $578) / 2 = $580
- Basic Lower Band: $580 − (3 × $5.20) = $564.40
- Since the prior trend was up, Supertrend prints at $564.40 (green)
If SPY closes the next day at $577 with the Lower Band ratcheting to $565.10, Supertrend continues to print green at $565.10. The trend only flips when SPY closes below the Lower Band — at which point the indicator immediately recalculates the Upper Band, prints it in red overhead, and the system declares a downtrend.
When Traders Use the Supertrend
Three common applications: (1) trend confirmation filter — only take long trades when Supertrend is green, only short when red; (2) trailing stop — exit a position when price closes through the line; (3) multi-timeframe alignment — require Supertrend green on the daily, 4-hour, and 1-hour charts simultaneously before entry. Algorithmic systems often combine Supertrend with RSI or MACD to filter signals during chop.
Limitations and Common Misconceptions
Supertrend whipsaws aggressively in range-bound markets. A typical configuration produces 15-25 flips per year on a major index, but during a multi-week consolidation it can flip 4-5 times in two weeks, generating cumulative slippage that exceeds the eventual trend gain. The indicator is lagging by construction — it cannot signal a reversal until price has already moved through several ATRs of the prior trend's range.
The default ATR(10), 3.0 multiplier is calibrated for daily charts on liquid US equities. Applying the same defaults to a 5-minute crypto chart produces 80-100 flips per session — essentially noise. Lower multipliers (1.5-2.0) tighten the trail at the cost of more whipsaws; higher multipliers (4-5) reduce noise but give back more on reversals.