Supertrend

Supertrend is a trend following indicator that uses average true range to plot a trailing stop line above or below price. It aims to identify trend direction and provide dynamic stop levels.

Basic concept

• When price is above the supertrend line, the trend is considered up.
• When price is below the line, the trend is considered down.
• The line flips when price crosses it.

Example

A trader uses a 10 period ATR multiplier. The supertrend line stays below price during an uptrend and flips above price when the trend reverses.

Practical notes

Supertrend can whipsaw in sideways markets. Combining it with broader trend filters can improve reliability.

Practical checklist

• Define the time horizon for Supertrend and the market context.
• Identify the data inputs you trust, such as price, volume, or schedule dates.
• Write a clear entry and exit rule before committing capital.
• Size the position so a single error does not damage the account.
• Document the result to improve repeatability.

Common pitfalls

• Treating Supertrend as a standalone signal instead of context.
• Ignoring liquidity, spreads, and execution friction.
• Using a rule on a different timeframe than it was designed for.
• Overfitting a small sample of past examples.
• Assuming the same behavior in abnormal volatility.

Data and measurement

Good analysis starts with consistent data. For Supertrend, confirm the data source, the time zone, and the sampling frequency. If the concept depends on settlement or schedule dates, align the calendar with the exchange rules. If it depends on price action, consider using adjusted data to handle corporate actions.

Risk management notes

Risk control is essential when applying Supertrend. Define the maximum loss per trade, the total exposure across related positions, and the conditions that invalidate the idea. A plan for fast exits is useful when markets move sharply.

Variations and related terms

Many traders use Supertrend alongside broader concepts such as trend analysis, volatility regimes, and liquidity conditions. Similar tools may exist with different names or slightly different definitions, so clear documentation prevents confusion.

Practical checklist

• Define the time horizon for Supertrend and the market context.
• Identify the data inputs you trust, such as price, volume, or schedule dates.
• Write a clear entry and exit rule before committing capital.
• Size the position so a single error does not damage the account.
• Document the result to improve repeatability.

Common pitfalls

• Treating Supertrend as a standalone signal instead of context.
• Ignoring liquidity, spreads, and execution friction.
• Using a rule on a different timeframe than it was designed for.
• Overfitting a small sample of past examples.
• Assuming the same behavior in abnormal volatility.

Data and measurement

Good analysis starts with consistent data. For Supertrend, confirm the data source, the time zone, and the sampling frequency. If the concept depends on settlement or schedule dates, align the calendar with the exchange rules. If it depends on price action, consider using adjusted data to handle corporate actions.

Risk management notes

Risk control is essential when applying Supertrend. Define the maximum loss per trade, the total exposure across related positions, and the conditions that invalidate the idea. A plan for fast exits is useful when markets move sharply.

Variations and related terms

Many traders use Supertrend alongside broader concepts such as trend analysis, volatility regimes, and liquidity conditions. Similar tools may exist with different names or slightly different definitions, so clear documentation prevents confusion.

Practical checklist

• Define the time horizon for Supertrend and the market context.
• Identify the data inputs you trust, such as price, volume, or schedule dates.
• Write a clear entry and exit rule before committing capital.
• Size the position so a single error does not damage the account.
• Document the result to improve repeatability.

Common pitfalls

• Treating Supertrend as a standalone signal instead of context.
• Ignoring liquidity, spreads, and execution friction.
• Using a rule on a different timeframe than it was designed for.
• Overfitting a small sample of past examples.
• Assuming the same behavior in abnormal volatility.

Data and measurement

Good analysis starts with consistent data. For Supertrend, confirm the data source, the time zone, and the sampling frequency. If the concept depends on settlement or schedule dates, align the calendar with the exchange rules. If it depends on price action, consider using adjusted data to handle corporate actions.

Risk management notes

Risk control is essential when applying Supertrend. Define the maximum loss per trade, the total exposure across related positions, and the conditions that invalidate the idea. A plan for fast exits is useful when markets move sharply.