What Supertrend actually computes

Supertrend takes two settings, an ATR length (commonly 10) and a multiplier (commonly 3), and from those every line and every colour change on the chart is fully determined. That makes it unusually honest as indicators go: you can compute it by hand. It also means the settings are the whole story, which is why "best settings" is the question people ask most.

The rule

On every bar:

mid = (high + low) / 2
upper = mid + multiplier x ATR
lower = mid - multiplier x ATR

The bands then ratchet. In the "up" state the lower band can rise but never fall; in the "down" state the upper band can fall but never rise. The state flips when a close crosses the active band.

Put plainly: Supertrend is a volatility-scaled trailing stop that reverses itself when it is hit. It has two states and no neutral one, so it is always saying "up" or "down", whether or not anything is trending.

What the two settings change

• Multiplier: how far the stop trails. Near the best bar of a move the active band sits about multiplier x ATR from that bar's midpoint, so a flip arrives only after price has given back roughly that much. A larger multiplier means fewer flips, each one later.
• ATR length: how quickly the band's width reacts to a change in volatility. A short length widens the band fast after a big bar; a long one is slower to widen and slower to narrow.

Why there is no best setting

A setting that looks good on a chart was usually chosen after looking at that chart. Change the symbol, the timeframe or the year and the "best" pair moves. What you can choose deliberately is how much give-back you accept before the tool changes its mind, measured in ATRs, and that is a risk choice, not a discovery about the market.

Does Supertrend repaint?

Not on closed bars: once a bar has closed, its band and its state are fixed. On the live bar the close is still moving, so a flip can appear mid-bar and be gone at the close. If you act on flips, act on the closed bar. Versions that pull Supertrend from a higher timeframe are a separate case, and whether they change after the fact depends on how the script requests that data.

Where it fails

• Every flip is late by construction: roughly multiplier x ATR from the best bar's midpoint.
• Where typical swings are about the size of the multiplier, it flips near the end of each swing (whipsaw).
• Two states, no neutral: it says "up" or "down" even when nothing is trending.
• On the live bar it can show a flip that disappears at the close.
• Gaps raise ATR and push the bands further away right after large moves.
• A 3x ATR band on a 15-minute chart and on a daily chart are different tools; a reading needs its timeframe.
• Using a flip as an entry treats "a stop was hit" as "a trend began". Those are different claims.

The Teardown Letter

The monthly Teardown Letter takes one popular indicator apart per issue in the same way: what it computes, what follows from the arithmetic, and where it misleads. Issues so far: RSI, MACD, order blocks, Fibonacci and Supertrend. New subscribers get every past issue.

Also explained: VWAP, Supertrend, RSI