Average Daily Range (ADR) Indicator
Description of the Average Daily Range indicator
The Average Daily Range indicator (Fig. 1) or the average daily range indicator shows the price change between the highs and lows, i.e. the average volatility of the asset price over a certain period of time.
This is particularly effective in forex indicator In intraday strategies to predict price movement in the short term. ADRs are often used to set targets forex tradingbecause it shows quite accurately the situation on the market.
The average daily range is calculated by a simple formula, in points from the lowest to the highest price for the time period. This formula sums up the price movement for each day of the week (for example, Monday - 100 pips, Tuesday - 20 pips, Friday - 154 pips) and divides the sum, in this case, by the number of trading days, 5. The result of the calculations is shown on the information panel on the price chart.
The indicator on the chart is represented in the form of several price levels, two of which are the most important - the ADR boundaries. They show the range in which the price of the asset moves, which allows you to calculate the future price. The other levels of the indicator are additional, weekly levels.
Levels are calculated and set using a formula in which the ADR for the trading month (20 days) is added to the average price range for the week and the closing price of the last trading day, Friday, is subtracted. This level is called week high. If the sum of the ADR for the week and month is divided by 4 and added to Friday's closing price, you will get the week mid high, if Friday's price is subtracted, it will be the week mid low level. Other levels of the indicator can be reference points for more distant targets, as well as perform the functions of resistance and supportBut, nevertheless, it is not possible to carry out strategies that involve breaking through these lines.
It is believed that if the price of the asset has reached one of the levels, you can close the trade, if it was open. At the same time, if there is no position open, and the price approaches one of the lines of the indicator, the position is no longer open. It is also not recommended to buy at the upper and sell assets at the lower boundaries of the range of the indicator in question. Placing buy positions, it is necessary to focus on the maximum of the daily range, and placing positions to sell, it is necessary to proceed from the minimum of the daily range.
At the bottom of the indicator there is a table (Fig. 2), an auxiliary information window, in different variants of the indicator it can display a different amount of information, but in any case the price extremums during the period, ADR values, trading periods are marked in it.
In fact, the Average Daily Range is a calculator for determining the average daily range, it does not require any special conditions for its application, it applies to any asset, on any timeframe.
At the beginning of the work with this oscillator for forex it is necessary to specify what time the indicators of the current day are calculated, it matters when working with the Asian or European markets.
Log into your broker's terminal, add the Average Daily Range indicator to the chart and see what comes out
|Broker||Bonuses||Open an account|
Average Daily Range indicator in the MetaTrader 5 platform
The Average Daily Range is not included in the list of standard indicators of the trading terminals. For MT5, this indicator and several of its varieties are presented in the "Market", for example, at this link https://www.mql5.com/ru/market/product/19230, which leads to the "Market" directly in the terminal itself, from where it is loaded in the navigation panel of the program on the left.
Among the ADR indicator settings (Fig. 3) we should note ADRPeriod - period of price dynamics calculation in days; PrecalculateDays - support and resistance levels are shown for certain days; ADRZonePercent - zone width in relation to price dynamics:
You can also set the colors, and because the visual component is important in the interpretation of ADR indicator indicators, this is quite a serious point. The colors of statistical resistance levels StaticHighColor and support StaticLowColor; dynamic levels ShowDynamicLevels; dynamic resistance levels DynamicHighColor and support DynamicLowColor are adjusted. You can also make some adjustments to the ShowInfo panel display.
It should be noted that the ADR indicator does not have a single form, in different terminals, you can see different types of it, the information may be of different depth and volume. For example, in the considered indicator the main tool is placed at the bottom left of the chart. It has two values (Fig. 2) - the upper one shows ADR for a certain period, used in the strategy, and the lower one shows the current value of ADR. A small difference between the values shows low volatility, while larger values show an increase in volatility, respectively.
Other types of ADR indicators, as a rule, place a table with a large number of variables on the chart. In addition, the existing types of ADR indicators are updated and may differ in functionality from the "old" versions, this must also be kept in mind. Many sites that talk about forex strategies The links to the ADR indicator download files. When downloading files from third-party sources, you must first make sure that they are safe.
Average Daily Range indicator signals
ADR can be used for a quick, "by eye" assessment of daily price movements. If the ADR is above average, it means that volatility is high and that in itself Forex signal to take a closer look at the dynamics of the currency pair (forex forecasts). For example, if the ADR average price range of the pair is over 80 pips, you might want to count on higher targets.
It is also actively used as a tool that gives an answer to the question of whether it is necessary to hold a position further or better to exit the trade. And this information will be useful in many trading strategies. ADR can be used in reversal strategies, because if the price reaches its upper limit, you can expect a pullback. The ADR indicator is often used in strategies built on the breakdown of a flat movement.
ADR is suitable for the timely installation of stop-loss, take-profit (taking into account that the indicator shows average values). At the same time, the ADR indicator is not very suitable for determining entry points into the market. The indicator shows good results mainly on active positions. Although, guided by its performance, you can determine which way you can enter into transactions.
The ADR indicator is particularly useful for accurately determining the exit point. This is not always possible, especially for novice traders, because having incorrectly identified the price range, they either set too small goals and exit too early, or, on the contrary, overestimate their capabilities and leave the market untimely. This is especially true in intraday strategies and in scalping. The usefulness of ADR in this case can hardly be overestimated.
Trading strategies based on the Average Daily Range indicator
The Average Daily Range is not often used in trading as the main or additional indicator in intraday strategies. But there are many variants of strategies based on this indicator alone. ADR is also used in various rare strategies with non-standard indicators. For example, this strategy is used to trade currencies with small spreads at the beginning of the European session, provided that no events are expected, which could dramatically change the dynamics of prices.
Pending buy orders are set a few points above the daily maximum of the previous day, and sell orders - below the minimum of the previous day. Stop-losses and take-profits are set depending on the ADR indicator points. If orders have not closed, they are removed and new ones are placed.
One of the features of the average daily range is its uniqueness for each market. And this feature is used to predict future price with high accuracy. With this strategy, traders mark the distance of the price move during the trading period and assume that the asset will repeat its path in the future. This feature can be used in trading, although this strategy is implemented infrequently and is not recommended for beginners (Forex Trading Training).
ADR indicator is used in a fairly well-known strategy "RenkoSwing", which is implemented on Renco charts. For MT4 and MT5 Renko can be downloaded and installed as an indicator (Fig. 4).
Recall that the Renco chart displays price dynamics in diagonal rows, built from rectangles that are measured in pips. Price growth is shown by placing a new rectangle, in this case blue, to the right of the previous similar rectangle. A falling price is shown by placing a new rectangle, in this case red, below and to the right. The chart is plotted in such a way that the new price value is compared with the extrema of the previous rectangles.
The "RenkoSwing" strategy, which is a scalping strategy, uses the following indicators on the Renko chart (Fig. 5) SMA with a period of 50, Stochastic with settings of 15, 5, 5, EMA with a period of 5 and the SMA with a period of 8, the ADR indicator with a period of 60.
ADR is needed to determine the limits of volatility, the SMA is used to determine the direction of the trend, the Stochastic indicator is needed to determine entry points, EMA and SMA show exit points and here they are helped by ADR. The strategy is implemented on the M1 timeframe.
The signal to buy is when the price is above the SMA with period 50, the Stochastic comes out of oversold area, EMA crosses the SMA (8), ADR shows the maximum value. The signal to sell would be a mirror position, but the ADR must also be set to maximum. In addition, the settings of this indicator must be adapted for each pair traded.
The advantage of the Average Daily Range indicator is that it is very informative and can be used on any timeframe and any asset. It makes it possible to set goals during the trading day, it can be easily used to determine the direction of opening positions and the areas of support and resistance.
It is optimal to determine the exit points from the trades by the indicator in question. ADR can be especially useful for placing protective orders, allows the most comfortable for any trader to adapt the data for work. Thus, ADR indicator will be appropriate, probably, in any indicator strategy.