Supertrend Indicator: What It Is and How It Works?

What Is the Supertrend  Indicator?

The Supertrend indicator is a straightforward trading tool that helps identify market trends and provide clear buy and sell signals.

This indicator is plotted on price charts and works well in trending markets.

The Supertrend indicator is important because it simplifies trading decisions by clearly showing the direction of the market trend.

How does a Supertrend indicator work?

The Supertrend indicator works by using the average true range (ATR) to calculate its value.

When the price moves across the ATR value, it changes direction, switching from a downtrend to an uptrend and vice versa.

This change is visually represented on the chart, making it easy to follow the trend.

How to Calculate the Supertrend

1. Calculate ATR:

Measures volatility over a set period (commonly 10 or 14 days).

2. Find the Basic Bands:

For example, if High = 100, Low = 90, ATR = 2, and Multiplier = 3 → Upper Band = 101, Lower Band = 89.

3. Plot the Supertrend Line:

• Uptrend: Price closes above the band → line turns green (buy).

• Downtrend: Price closes below the band → line turns red (sell).

Key Parameters

• ATR Period: Defines how many periods to measure volatility (10 or 14 typical).

  • Shorter = more sensitive

  • Longer = smoother

• Multiplier: Sets how far bands are from the price.

  • Higher = fewer signals, more stability

  • Lower = more signals, more noise

Adjust both to match your trading style, shorter settings for quick trades, longer for stable trends.

Supertrend Indicator Settings (ATR Period & Multiplier)

The best settings for the Supertrend indicator vary depending on the market and trading style. However, a common and effective setting is an ATR period of 10 and a multiplier of 3.

Adjusting these settings can help tailor the indicator to suit different market conditions.

Below is a breakdown of the most common settings so you can pick the best supertrend indicator settings for you:

• Supertrend Default Settings: ATR period of 10 and a multiplier of 3. This setup balances sensitivity and reliability, making it a good starting point for most traders.

• Supertrend Aggressive Settings: ATR period of 7 and a multiplier of 2. This setup is more sensitive and better suited for short-term traders looking for quick market movements.

• Supertrend Conservative Settings: ATR period of 14 and a multiplier of 4. This setup is less sensitive and better suited for long-term traders who want to avoid minor price fluctuations.

How to Use the Supertrend Indicator – Entry & Exit Signals

The Supertrend indicator helps traders identify precise buy and sell signals based on market trends.

It works best in trending markets, making it an essential tool in any Supertrend strategy.

1. Add the Supertrend Indicator to your price chart.

   1. Common settings: ATR Period = 10 or 14, Multiplier = 3.

2. Identify the Trend Direction:

   1. Green line below price → Uptrend

   2. Red line above price → Downtrend

3. Entry Signal (Buy):

   1. When the Supertrend turns green and the price closes above the indicator line, it signals a buy opportunity.

   2. Example: Price breaks above the red line, which flips to green → enter a long trade.

4. Exit Signal (Sell):

   1. When the Supertrend turns red and the price closes below the line, it signals a sell or short opportunity.

   2. Example: Price drops below the green line → exit the position or go short.

5. Use in Trending Markets:

   1. Works best when prices are moving strongly in one direction.

   2. Avoid using it in sideways or choppy markets to reduce false signals.

Best Supertrend Settings for Intraday vs Swing Trading

The right Supertrend indicator settings depend on your trading style and timeframe.

Adjusting the ATR period and multiplier helps fine-tune the indicator’s sensitivity for intraday, scalping, or swing trading strategies.

Intraday & Scalping with Supertrend (Short-Term)

• Timeframe: 1-minute to 15-minute charts

• ATR Period: 7-10

• Multiplier: 2-3

Ideal for quick trades and volatile markets.

Lower settings make the indicator more responsive, giving faster buy/sell signals—perfect for scalping with Supertrend or high-frequency trading.

Swing Trading with Supertrend (Medium- to Long-Term)

• Timeframe: 1-hour to daily charts

• ATR Period: 10-14

• Multiplier: 3-4

Suitable for catching larger price moves and reducing false signals.

Higher settings make the line smoother, ideal for trend-following and Supertrend indicator trading on higher timeframes.

Strengths and Limitations of the Supertrend Indicator

The supertrend indicator is beneficial but also presents a few limitations.

Supertrend Indicator Strengths

The Supertrend indicator is a traders’ favorite for the below reasons:

• The Supertrend indicator is easy to understand and use, even for beginners. It provides clear visual cues for buy and sell signals.

• It is highly effective in trending markets, helping traders to identify and follow the prevailing market direction.

• The indicator can be applied to various timeframes, making it useful for different trading styles, from day trading to long-term investing.

Supertrend Indicator Limitations

The Supertrend indicator has the following cons:

• In non-trending or choppy markets, the Supertrend indicator may generate false signals. These occur when the price repeatedly crosses above and below the indicator line without establishing a clear trend.

• As a trend-following indicator, it may lag behind the actual price movements. This means that traders might enter or exit trades slightly later than the optimal point.

• Market volatility can influence the indicator's effectiveness. While adjusting the ATR period and multiplier can help, it may still struggle in highly volatile or low-volatility environments.

Conclusion

The Supertrend indicator is a simple yet effective tool for enhancing trading strategies.

By adjusting the ATR period and multiplier, you can tailor it to different market conditions and trading styles. For best results, combine the Supertrend with other technical indicators to increase accuracy and reliability.