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Market Intelligence › Basic Terminologies
A trailing level built on ATR, and how it ends up in a ranging market
Published by The Retail Trader · JUL 30, 2026 · Indicators
Supertrend is a line that sits above or below price and tells you only two states. Its simplicity is its biggest advantage and also its biggest trap.
It is built on ATR — the line is drawn by keeping a volatility-based distance from price, and when price crosses that line the state flips.
There are two settings: the period of the ATR and its multiplier. A smaller multiplier gives more signals and more false ones; a larger one gives fewer and later ones.
Its behaviour depends entirely on the type of market:
• In a clean trend it holds on to a long move — that is exactly how it is designed.
• In a range it keeps giving false signals, on both sides.
• It always stays inside the trend, so it never gives you the top or the bottom.
• Reversing the position on every signal creates a big loss in charges alone.
The most honest picture of any trend-following tool shows up in its bad periods, not its good ones. When looking at a backtest, first check how much it gave back in the range-bound months — because that is the larger part of the year.
This article is for educational purposes only — it is not a buy or sell recommendation, makes no claim of guaranteed returns, and is not advisory. Rules, rates and mechanics are changed by the exchanges, SEBI and RBI from time to time, so verify every number yourself with your broker or the official source.