CYCLEPEDIAThe trading encyclopedia
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Supertrend

A band built as (H+L)/2 ± multiple × ATR acting as a dynamic stop: below price with a long bias (green), above with a short bias (red). The line ratchets along and never backs off while the trend lasts.

On this page

The Supertrend, attributed to Olivier Seban and hugely popular on crypto and futures, takes the Parabolic SAR idea — a stop that chases the trend and switches sides when hit — and rebuilds it with a better ingredient: the ATR. The distance between line and price is no longer set by a fixed acceleration factor but by the actual volatility of the moment: nervous market, wider line; calm market, closer line.

In plain terms — A safety rope anchored a few metres below the climber: as the climber rises, the rope rises too, but it never slides back down. The rope's length adjusts itself to the market's "wind". If the climber slips down to the rope, the ascent is considered over.

How it is built

Upper band = (high + low)/2 + m × ATR(n) Lower band = (high + low)/2 − m × ATR(n)

with typical parameters n = 10, m = 3. Two rules turn the bands into the Supertrend:

  1. Ratchet effect — in an uptrend the lower band can only rise (never retreat from price); in a downtrend the upper band can only fall.
  2. Flip — when the close crosses the active band, the bias inverts and the line jumps to the opposite side.

The result: a single line, green below price or red above, always visible and never ambiguous.

How to read the chart — Price with the Supertrend (10, 3) computed with the real algorithm: green segments below price, red above, flips at side changes. Interactive — the highlighted points show the side change, the stop ratcheting upward and the cost of flips in choppy markets.

INDICATOR · TREND Supertrend — an ATR band acting as a stop (H+L)/2 ± multiple × ATR · the line ratchets along with price CYCLEPEDIA DIAGRAM — EMICICLO SUPERTREND (10, 3) line below = long bias line above = short bias flip FLIPS IN THE PERIOD 2 BARS WITH LONG BIAS 28 of 49 Simple, visible rules: the value is in discipline, not in parameter tuning
The line ratchets up without ever backing off while the trend lasts; at the flip it restarts from the opposite side.
Hover or tap the highlighted points

Reading it in practice

  1. A ready-made trailing stop — the line's value is a concrete exit level updated bar by bar: the function the tool is built for. See trailing stop.
  2. Directional hygiene — green: long ideas only; red: short only. A blunt but effective rule against the habit of fighting the trend.
  3. Tuning the multiple — high m (3–4): few flips, more profit handed back before the exit; low m (1.5–2): tighter exits, many more false flips. It is the same smoothness/lag trade-off as with moving averages, dressed up as a stop.

Limits and traps

Warning — The Supertrend's popularity on crypto has spawned the legend of "perfect parameters". Any (n, m) pair that shines in the backtest of one specific period is an overfitting candidate: the tool's value lies in the discipline it enforces, not in a miracle tuning.

  • In sideways markets flips fire in sequence and each one costs: the regime filter (ADX) comes first.
  • Like every averages-and-ATR tool, it confirms late: the flip arrives when part of the move has already happened.
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