In this lesson
- compute the true range and ATR step by step
- understand how the Supertrend line is built from ATR
- see when Supertrend flips, and switch it on in Binance
Supertrend is a handrail on a staircase: in a rise it runs below the price and only moves up, never down. As long as the price holds on to it, you can keep climbing. When the price drops through it, the handrail moves above it. Professor Wick says it is the most honest line in the menu – it never backs down.
ATR: how big a normal move is#
Before we get to Supertrend we need its engine – ATR (average true range). A candle's true range is the largest of three numbers:
- the candle's high − low,
- the jump up from yesterday's close (high − yesterday's close),
- the jump down from yesterday's close (yesterday's close − low).
Thanks to the jumps, gaps between candles count too. ATR is then Wilder's average of the true ranges over N candles: every day 1/N of the new range is added to it. Go through it:
ATR 14 in the panel below the chart – in USDT, not in percent.
Feb 26, 2024: the true range is the largest of: high − low (4,008.56), the jump up from yesterday's close (3,181.15) and the jump down (827.41) – so 4,008.56. ATR = (1,424.88 × 13 + 4,008.56) / 14 = 1,609.43.
ATR has price units, so for Bitcoin at 60,000 it comes out differently than at 20,000. In this course's charts we therefore also show it as a percentage of the price: on 10 June 2024 ATR 14 was only 2.8% of the price, on 5 August 2024, during the fall to 49,000, already 5.8%. Move the period:
Average daily range: 3.9%. The common default setting – try moving the slider both ways.
Supertrend: a handrail made of ATR#
The Supertrend takes the middle of the candle, (high + low) / 2, and subtracts or adds a multiple of ATR – on Binance 3 × ATR 10:
- in a rise the line lies 3 ATR below the middle of the candle and moves only up,
- in a fall it lies 3 ATR above it and moves only down,
- when the close crosses the line, the trend flips and the line jumps to the other side.
- Supertrend 10, 3 – green below the price, red above it
- ATR 14 – average range as % of price (panel below the chart)
Notice that when the market is wild (ATR high), the handrail is further from the price and survives bigger swings. In a calm market it comes closer and a smaller move is enough.
On Binance#
Original mode → indicator icon → Main Indicator → SUPER. You set the ATR length (ATR Length, default 10), the multiplier (Factor, default 3), the colours for up and down and the background fill. ATR itself is not in Binance's menu – it lives inside Supertrend:
A higher Factor gives the handrail more room – fewer flips, a later exit. A lower one pulls it in – more flips.
Supertrend flips only after the move
Supertrend flips only when the close crosses a line several ATRs away. That means an exit based on it comes only after a fall of several "normal" daily moves. In a sideways market it flips often, and late every time.
Common myths#
- "A green Supertrend = the price will rise." Green only means the line below the price has not been crossed yet.
- "ATR shows the direction." ATR measures the size of a move, not its direction – it rises in a crash and in a rocket rally alike.
- "Supertrend is never wrong because it never backs down." It does not back down, but it can flip – and in a chop it flips often.
Summary
- True range = the largest of (high − low, jump up, jump down); ATR is its Wilder average.
- Supertrend = middle of the candle ∓ 3 × ATR 10; it moves only with the trend.
- It flips when the close crosses the line.
- On Binance: Original → indicator icon → Main Indicator → SUPER (10, 3).