Average Daily Range

The Average Daily Range (ADR) is a powerful volatility tool that helps traders measure the expected movement of an asset over a typical daily session. By calculating the average distance between daily highs and lows over a specific lookback period, it projects potential price extremes from the current day's open. This indicator provides traders with critical context regarding market exhaustion, helping identify when price action may be overextended or approaching key pivot points.

How to Trade the Average Daily Range?

The ADR acts as a roadmap for daily price movement. One common strategy involves monitoring the projected ADR high and low levels as potential areas of interest for mean reversion. When price action approaches these boundaries, it often indicates the asset has exhausted its typical daily volatility, suggesting that a reversal or a period of consolidation may follow.

Traders also use the ADR to gauge the strength of a move. If price breaks through the projected ADR levels with strong momentum, it may signal a breakout or a significant shift in market trend rather than a simple exhaustion point. Furthermore, the indicator is highly effective for risk management. Many traders use these projected levels to set realistic profit targets for the day or to place stop-losses outside of the typical range to avoid getting stopped out by standard intraday noise. By observing the information table, you can quickly assess how much of the day's expected movement has already occurred, allowing for more informed entry and exit decisions.

Average Daily Range Settings

Calculation

• ADR Length: Defines the number of historical daily ranges used to calculate the average. A lower value makes the indicator more sensitive to recent market changes, while a higher value smooths out the calculation over a longer period.
• Range Basis: Allows you to choose between the standard daily candle or the regular session hours for the calculation, which is useful for traders focusing on specific market windows.

Display

• Show Daily Open: Toggles the display of the current session's opening price.
• Show ADR Midpoint: Enables the visibility of the midpoint line between the projected high and low.
• Show Information Table: Toggles the display of the summary table, which provides real-time data on ADR values and current range completion.

Style

• ADR High: Adjusts the color of the upper projected range boundary.
• ADR Low: Adjusts the color of the lower projected range boundary.
• Daily Open: Sets the color for the line representing the session opening price.

Frequently Asked Questions

How is the ADR value calculated?

The indicator calculates the average difference between the high and low of the previous daily sessions over the chosen lookback period. These values are then projected from the current day opening price to visualize where the market may reach its potential range extreme.

Can the ADR be used for day trading?

Yes, the ADR is designed specifically for intraday analysis. It helps define the typical expected boundaries for a session, providing traders with an objective framework to set profit targets and manage risk throughout the day.

What does it mean when the price exceeds the ADR?

When price action moves beyond the projected ADR levels, it indicates that the current volatility is higher than the average for the defined lookback period. This usually signals a strong breakout move, although it also identifies a zone where market exhaustion is statistically more likely.