The forex market is fast. Prices move up and down in seconds. Traders need a way to measure these movements and how far prices could potentially travel in a day.
Enter ADR - Average Daily Range. ADR is a simple statistic that tells traders how much the price moves across the day. Specifically, it measures the average distance between the daily high and daily low price taken over a number of specified days.
Even the smartest forex traders will use the ADR measure to set potential profit targets, establish stop losses, and manage risk. You'll learn everything there is to know about ADR, including what ADR is, how to calculate ADR, what to do with ADR in your trading, and how to apply it in your trading plans.
This article organizes these learning goals into clear headings and sections to maximize your learning. We will first cover some basic definitions so we have enough knowledge to do some calculations eventually. Then we will explore and perform calculations with our data. We will then examine some trading strategies with ADR. We will also locate ADR among other similar indicators and evaluate its worth potentially. Finally, after reading this article, you will know exactly how to go about adding values of ADR into your results when you trade forex.
What is ADR?
ADR, or Average Daily Range, is a measurement of the average price movement of a currency pair on an average day. Traders generally take the ADR reading for a particular currency pair over a number of periods or days. The most common timeframes traders will look at are 14 periods or 20 periods.
The calculation for ADR is fairly straightforward:
Daily Range = Daily High - Daily Low
ADR = Sum of Daily Ranges ÷ Number of days
Imagine EUR/USD has the following daily ranges over a 5 day period:
Day 1: 85 pips
Day 2: 92 pips
Day 3: 78 pips
Day 4: 88 pips
Day 5: 82 pips
Your 5 day ADR = (85 + 92 + 78 + 88 + 82) ÷ 5 = 85 pips
This means EUR/USD moves, on average, 85 pips per day. Traders will then use this figure to project a workable basis for their expectations regarding a realistic price movement. Using this information traders will better understand that the currency pair may move about 85 pips in either direction.
For more info:-
Comments