Short answer: the supertrend indicator is a trend-following tool that draws one line above or below price. The line sits a multiple of average true range (ATR) away from the bar midpoint. When price closes through it, the line flips sides and changes colour, which is where its buy/sell signals come from. Green below price means uptrend, red above price means downtrend. It is blunt by design. It trails well in a clean trend and whipsaws in a range, so the job is knowing which of the two you are in.
This page is for CFD traders on forex, indices, metals and crypto. Among technical analysis tools supertrend is unusual: one line, one rule, and trading signals that need no interpretation. It fits most trading strategies as an exit rule first.
What the line is actually made of
The indicator was popularised by Olivier Seban, a French trader, and it needs only two inputs: an ATR period and a multiplier. The default on most trading platforms is a 10-period ATR with a multiplier of 3.
- Find the midpoint of the current bar: high plus low, divided by two.
- Add the multiplier times ATR for a raw upper band; subtract it for a raw lower band.
- Ratchet the bands. In an uptrend the lower band may rise but never fall. In a downtrend the upper band may fall but never rise.
The ratchet is the consequential part. The line only tightens behind price and never loosens, which turns a volatility band into a trailing stop. A flip happens when a bar closes on the far side of the active line, and the colour switches from green to red or back. Because ATR sits inside the formula, the line quietly adapts: on a sluggish index session it hugs price, on a jittery crypto session it stands well back. Our guide to the ATR indicator explains why true range includes gaps, which matters for instruments that open Monday away from Friday's close.
Choosing the ATR period and multiplier for your style
There is no correct setting, only one that matches how long you intend to hold. A short period and small multiplier make the line skittish and punctual; a long period and large multiplier make it patient and sluggish.
| Trading style | ATR period | Multiplier | What you get |
|---|---|---|---|
| Scalping on 1 to 5 minute charts | 7 | 1.5 to 2 | Fast flips, frequent whipsaws, tight trail |
| Intraday on 15 to 60 minute charts | 10 | 2.5 to 3 | The stock default, balanced |
| Swing on 4-hour and daily charts | 14 | 3 to 4 | Fewer signals, wider stop, survives pullbacks |
| Position on weekly charts | 20 | 4 to 5 | Rare flips, only major trend changes count |
A quick test: count the flips over the last 100 bars of your instrument. Fewer than five and the line is too forgiving to work as an exit. More than twenty and it is needlessly jittery for anything beyond scalping. Results vary across asset classes: gold and BTC want a larger multiplier than EUR/USD at the same period, because their ranges are lumpier.
Supertrend versus other trend-following tools: a decision framework
Choosing between trend tools is mostly a question of what you want the tool to do.
| Tool | What it answers | Strength | Weakness |
|---|---|---|---|
| Supertrend | Which side am I on, and where is my trailing stop? | One line, one rule, no ambiguity | Coarse in ranges, lags at turns |
| Keltner channel | Where is price relative to its average range? | Shows extension and squeeze | No built-in flip or stop |
| Moving average crossover | Is momentum shifting? | Familiar, easy to read | Two lines, slower, more hesitancy |
| ADX | How strong is the trend? | Filters out ranges | Blind to direction |
The honest summary: supertrend is the best of these for managing a trade you are already in. It is the weakest for deciding whether a trend exists at all. A Keltner channel uses the same ATR input but wraps price in an envelope, so it reports stretch rather than side. Many traders run both: the channel to judge whether the market is trending or crowded into a range, supertrend to hold the position once it is. The logic of trend-following applies whichever line you use: lopsided results, many small losses and a few large wins.
A supertrend strategy with a worked example
Use the flip as the trigger and the line as the stop. On a 10,000 account risking 1 percent, or 100, per trade:
- Wait for a fresh flip to green on the 1-hour chart after the 4-hour decline has clearly decelerated.
- Enter at the next bar's open. Say the pair is at 1.2700 and the green line sits at 1.2653.
- Stop a few pips beneath the line at 1.2650, so 50 pips of risk. That is 2 per pip, or 0.2 standard lots.
- Move the stop only when the line moves.
- Exit when a bar closes below the line and the colour flips to red.
Suppose the move runs 200 pips and the line has climbed to 1.2850 when the flip comes. The exit is roughly 150 pips above entry, about 300 against 100 risked. Now the unforgiving half. If the pair instead drifts sideways for two days, the line flips three times in 20-pip stutters. Each flip costs the spread plus commission, and three losses of about 40 each eat almost half of one good trade. That is the real cost of the indicator: a handful of thankless whipsaws for every clean run. It only works if you stubbornly take every signal, because the one you skip is seldom the losing one.
Common mistakes and limitations
- Trading every flip in a range. Sideways markets generate disorderly signals in both directions; add a higher-timeframe filter.
- Treating the line as a forecast. It confirms a trend that has already started and flips after a turn has already happened.
- Placing the stop exactly on the line. Spreads widen around news, and wicks that never closed through the line will clip it.
- Tuning the multiplier until backtests look perfect. Settings that work at 2.7 and fail at 2.5 are brittle.
- Running it on thin instruments. Patchy volume produces wobbly ATR readings, and the line inherits that noise.
- Ignoring the timeframe above. A green line on the 5-minute chart inside a red line on the 4-hour chart is a precarious long.
These are the ordinary failure modes of any trailing-stop system, made more visible because the indicator reduces everything to one colour.
Where it fits inside a prop-firm evaluation
Evaluations punish a lumpy losing day and a slow bleed. Supertrend helps with both as an exit and hurts with both as a signal generator in a range. The line gives you a stop distance before you enter, and sizing should come from that distance. Pivex sets a daily loss cap that renews each session and a total drawdown that does not trail your equity. An ATR-based stop converts those two numbers into a position size rather than a hope. A useful habit: on any day the line has flipped twice already, halve your size or stop trading that instrument. Two flips is the market telling you plainly that it is not trending.
Your next step: add the indicator to one chart with the default settings and log every flip for a week without trading them. Note which flips were followed by a run and which by a stutter, then size each entry from the line distance and a fixed percentage of your account. Pivex's built-in assistant tracks your daily limit and total drawdown as you go, so the line and the account rules pull in the same direction.
Related guides: ATR indicator and trend-following.
Before participating, review Pivex's current program rules and decide whether a simulated proprietary trading evaluation fits your experience and risk limits. Participation does not guarantee a reward, income, or any particular trading result.