Supertrend draws a line a set distance (a multiple of the Average True Range, usually 3 × ATR over 10 days) below the price in an uptrend and above it in a downtrend.
- When the price closes through the line, Supertrend flips: from bearish to bullish or the other way.
- Many traders use the line as a trailing stop loss.
- It works well in trending markets and gives repeated false flips in sideways ones.