How the Supertrend Indicator Formula Works Explained Simply
Introduction
Ever wondered how the Supertrend Indicator works behind the scenes?
Although it’s easy to use, understanding the formula will give you deeper insights into why signals change and how settings affect performance.
In this guide, we’ll explain the Supertrend formula in the simplest possible way for beginners.
🧠 The Basic Supertrend Formula
The Supertrend Indicator relies mainly on two values:
- ATR (Average True Range): Measures market volatility.
- Multiplier: Expands or shrinks the ATR value.
The Supertrend line calculation is:
Upper Band = (High + Low) / 2 + (Multiplier × ATR)
Lower Band = (High + Low) / 2 – (Multiplier × ATR)
How the Supertrend Indicator Signals Work
- When the price closes above the Upper Band, Supertrend flips to a Buy Signal (Green line below price).
- When the price closes below the Lower Band, Supertrend flips to a Sell Signal (Red line above price).
That’s it!
The indicator automatically adjusts itself based on recent volatility (ATR) and maintains a dynamic support or resistance line.
Why Understanding the Formula Matters
- Helps you fine-tune settings for different stocks and volatility levels.
- Prevents blind use of default settings in all market conditions.
- Allows better backtesting and optimization of strategies.
Visual Example:
| Condition | Supertrend Action |
|---|---|
| Price > Upper Band | New Buy Signal |
| Price < Lower Band | New Sell Signal |
| Price between bands | No Change |
Pro Tip:
Increasing the multiplier will create a wider gap between price and Supertrend line — filtering out minor noise but delaying signals.
Internal Linking Suggestion:
Link to: Supertrend Indicator Best Settings for Beginners
FAQs
Q1. What are the two main components of Supertrend?
ATR and Multiplier.
Q2. What happens if I lower the ATR period?
Supertrend will react faster but may generate more false signals.
Q3. Is Supertrend purely based on price movement?
No, it’s based on both price and volatility (ATR).
Q4. Can I customize the Supertrend formula?
On advanced platforms (like TradingView Pine Script), yes.
Q5. Does the Supertrend formula repaint?
No, once the candle closes, the Supertrend value is fixed.
