The idea
Supertrend draws one line, either under price (an uptrend) or over it (a downtrend). The line sits a multiple of the average true range (ATR) away from the middle of each candle, and it only moves in the trend's favour. When price closes through it, the line jumps to the other side and the trend is said to have flipped.
Used as a strategy, the flip up is the entry and the line itself is the trailing stop. It is one of the most added indicators on TradingView, often under other names such as ATR trailing stop or UT Bot.
Watch it play out
Step by step
The rules
Setup
- Supertrend with an ATR period of 10 and a multiplier of 3 (the common default).
Entry
- Buy at the close when the line flips from above price to below it.
- Short when it flips from below to above.
Stop-loss
- The Supertrend line itself, updated each candle.
Target
- Exit when the line flips back. Some traders also take partial profit at 2R.
Filters that help
- Only take flips in the direction of a slower trend (for example above the 200 EMA).
- Ignore flips when the ATR is unusually small, typical of quiet ranges.
Why it can work
Measuring the stop in ATRs makes it adapt: wide when the market is wild, tight when it is calm. A move strong enough to cross a line several ATRs away is more likely to be a real change of direction than noise.
Because the line ratchets with the trend and never moves back, profits are locked in as the trend extends.
Worked example
On a four-hour bitcoin chart, price closes above the Supertrend line and it flips below price, 2,400 dollars under the close. Risking 100 dollars, that is 0.041 BTC.
Each candle the line rises with the trend. Three days later a candle closes under it and the trade is closed at whatever profit the trailing line has protected.
When it works, when it fails
Works best
In clean trends with orderly pullbacks, especially on higher timeframes and in markets that run, such as crypto.
Struggles
In ranges, where the line flips back and forth and each flip is a small loss. A multiplier that is too small multiplies these whipsaws.
Common mistakes
- Tuning the period and multiplier until the past looks perfect.
- Using it on one-minute charts, where noise flips it constantly.
- Treating every flip as a trade without a trend filter.
Variations
- Chandelier exit
- A trailing stop hung a few ATRs below the highest high since entry, used as an exit for any long.
What the evidence says
Evidence: Popular, untestedWidely used, but no rigorous public testing. An idea to test yourself.
ATR-based trailing stops are a standard part of trend following, which has strong research behind it as a family. Supertrend's specific rules, however, have no rigorous public study we can point to.
Results posted online vary widely with the settings and the market, and many are fitted to the past. Treat it as a trend-following tool to test, not a proven edge.
Questions
- Can Supertrend be used as a stop for other strategies?
- Yes, and many traders use it that way: they enter with another method and use the Supertrend line only to trail the stop, letting a winning trade run until the line flips.
- What are the best Supertrend settings?
- The common default is an ATR period of 10 and a multiplier of 3. Larger multipliers give fewer, later flips; smaller ones give more whipsaws. Choose one and test it rather than tuning to the past.
- Is Supertrend a leading indicator?
- No. It reacts after price has moved several ATRs, so it is always late. That lateness is what filters out small moves.
- What is the difference between Supertrend and a moving average?
- A moving average follows every price; Supertrend stays put until the trend extends and only ever moves in the trend's favour, which makes it a natural trailing stop.