Supertrend Indicator: Settings, Signals and Limits
Supertrend draws a single line below price while the trend is up and above price while the trend is down, flipping sides only when a candle closes through it. Because it is built from Average True Range, the line sits far from price when volatility is high and hugs price when things are calm.
Supertrend is an ATR based trailing stop line, plotted at the midpoint of the candle’s high and low and offset by a multiple of Average True Range, which changes direction only on a close beyond the line. That is the whole indicator. Two inputs, one line, two states.
Ahead: the calculation in plain arithmetic, what the two settings do, a worked example on a Rs 1,200 stock, and the three conditions where it fails.
The calculation, step by step
You need two inputs: an ATR period (commonly 10) and a multiplier (commonly 3). Compute the candle midpoint, then offset it.
Upper band = (High + Low) / 2 + (Multiplier x ATR)
Lower band = (High + Low) / 2 - (Multiplier x ATR)
In an uptrend it plots the lower band and ratchets it upward only, never downward while the trend holds. In a downtrend it does the reverse.
The flip rule makes it usable. Direction changes only when the close crosses the active line, not when a wick pokes through. Intraday the line can appear to flip and then flip back, so judge it on closed candles.
Everything rests on ATR. Our explainer on the Average True Range indicator covers how it captures the average size of a bar’s range including gaps.
What do the two settings actually change?
The multiplier controls distance. The ATR period controls how fast that distance reacts to a change in volatility.
| Period and multiplier | Line behaviour | Signal frequency | Suits |
|---|---|---|---|
| 7, 2 | Tight, reacts fast | High | 5 and 15 minute charts |
| 10, 3 | Balanced, the common default | Moderate | Swing trading on daily charts |
| 14, 3 | Smoother, slower to flip | Lower | Daily charts in trending stocks |
Treat these as starting points, not settings that work everywhere. No combination escapes the trade-off. A tight line exits early and throws false flips in chop. A wide line stays with a real trend but gives back more of the move.
Worked example: reading the line on a Rs 1,200 stock
A stock trades at Rs 1,200. The 10 period ATR is Rs 24, which is 2% of price. Your multiplier is 3, so the offset is 3 multiplied by Rs 24, giving Rs 72.
The latest candle has a high of Rs 1,210 and a low of Rs 1,190, so the midpoint is Rs 1,200. In an uptrend the line plots at Rs 1,200 minus Rs 72, which is Rs 1,128, sitting 6% below price.
Now use it for sizing. Buy 100 shares at Rs 1,200 and exposure is Rs 1,20,000, with Rs 72 per share of distance to the line, so Rs 7,200 at risk if it is hit.
Suppose your account is Rs 6,00,000 and you cap risk per trade at 1%, or Rs 6,000. Maximum quantity is Rs 6,000 divided by Rs 72, so 83 shares, not 100.
Watch what volatility does. If ATR doubles to Rs 48, the offset becomes Rs 144 and the line drops to Rs 1,056, now 12% below price. The same cap allows Rs 6,000 divided by Rs 144, so 41 shares. Volatility rose, position size halved. That is the indicator earning its place.
What signals does Supertrend give?
- A flip from above price to below it on a closing basis is a long signal, and the reverse is a short signal. The headline use, and the noisiest.
- The line as a trailing stop. Once long, the rising line gives a mechanical, volatility adjusted exit that never moves against you.
- Trend alignment across timeframes. If the daily line sits below price and the 15 minute line flips up, you have agreement.
Most experienced users treat the second as the real value. A trailing stop only asks whether you are still in a trend. An entry signal has to answer the harder question of whether a new one is starting.
A moving average crossover is a common entry partner, with Supertrend handling the stop.
Where does Supertrend fail?
Sideways ranges
It has no neutral state. It is always long or short, so in a range it flips repeatedly, buying near the top and selling near the bottom. A week of Nifty moving 200 points either side of a level can produce four or five flips, each losing a little.
Gap openings
The line is a price level, not an order. If a stock closes at Rs 1,200 with the line at Rs 1,128 and opens next day at Rs 1,050 after bad results, your loss is Rs 150 per share, not Rs 72. No ATR based stop protects against gaps.
Volatility spikes
When ATR jumps, the line widens, so the stop you thought sat at 6% now sits at 12%. Adapting to volatility sometimes means giving a trade more room than you wanted.
There is also repainting. Intraday, the current candle’s line shifts as the bar develops, so an apparent flip at 11:00 AM may be gone by the close. Traders who act on unfinished candles get chopped up by their own charts, much like how false breakouts trap people.
How to use it without getting chopped
- Decide your timeframe first, then pick a setting to match it.
- Act only on closed candles. Set an alert at the line instead of watching a live flip.
- Add a trend filter. Take long flips only when price is above a longer moving average.
- Check whether the market is trending at all. In a range it will lose money, as designed.
- Size the position from the distance to the line, not from a fixed quantity.
- Use it mainly to trail stops on positions you entered for another reason.
A second, non correlated tool helps, though stacking five trend indicators does not. Our note on combining technical indicators covers how to avoid three versions of the same signal.
A plain risk note: no indicator predicts price. Supertrend describes what has already happened to volatility and direction, and it will produce losing signals in ranging markets. Position sizing matters more than the setting you pick.
Frequently Asked Questions
What is the best Supertrend setting for intraday trading in India?
Faster settings such as a 7 period ATR with a multiplier of 2 are popular on 5 and 15 minute charts, because the line stays close enough to be useful inside a session. There is no single best combination. Test any setting across several months of the instrument you actually trade, including a sideways stretch, before risking money.
Does Supertrend repaint?
Completed candles do not change. The current, still forming candle does, because both ATR and the high low midpoint update until the bar closes, so a flip you see mid candle can disappear. This is exactly why the standard discipline is to treat only closed candle flips as signals worth acting on.
How is Supertrend different from Parabolic SAR?
Both are trailing stop indicators that flip sides. Supertrend takes its distance from ATR, so it widens automatically when volatility rises. Parabolic SAR accelerates toward price over time regardless of volatility, so it tightens the longer a trend runs. Supertrend tends to give trends more room, and SAR tends to exit sooner.
Can I use Supertrend for options trading?
Apply it to the underlying, never to the option premium. Premium charts are distorted by time decay and shifting implied volatility, so an ATR based line on them mostly produces noise. Take the signal from the index or stock chart, then pick your strike and expiry separately based on the move you expect.
Why did Supertrend give me five losing trades in a row?
Almost certainly because the market was ranging. The indicator has no flat state, so it keeps flipping long and short inside a sideways band, entering near each extreme. Add a filter that keeps you out while price churns around a moving average, and accept that a trend following tool loses money when there is no trend.
Key Takeaways
- Supertrend plots the candle midpoint offset by multiplier multiplied by ATR, and flips only on a close beyond the line.
- The multiplier sets how far the line sits from price. Wider means fewer false flips but a larger give back before exit.
- With price at Rs 1,200 and ATR at Rs 24, a multiplier of 3 puts the line at Rs 1,128, a stop distance of 6%.
- Size positions from the distance to the line. When ATR doubles, quantity should roughly halve at the same rupee risk.
- It has no neutral state, so it whipsaws in ranges. That is a design feature, not a malfunction.
- It works better as a trailing stop than a standalone entry signal, and offers no protection against gap openings.
