In today’s lesson, we will discuss a very simple but highly useful tool that forex average daily trading range in pips on labrea provide valuable information to the trader. The Average Daily Range shows the average pip range of a Forex pair measured over a certain number of periods. Traders can use the ADR to visualize potential price action outside the average daily move. The ADR can be helpful in setting targets for positions you are currently in as well.
For example, if the ADR shows you that a Forex pair has an average daily range of 85 pips, then it might be wise to tighten up your target if a price move has achieved or is close to this expected range. The ADR is also useful for trading intraday reversals. For example, if a currency pair reaches the top of a daily range, then it could be due for a reversal, and you could consider a mean reversion strategy to capture a potential retracement. Before we dive into how we can use the ADR to trade, we should take a moment to understand the composition of the indicator. The indicator has a very simple and easy-to-understand formula, which will be discussing next.
The calculation of the daily range of a currency pair is a relatively easy process. You simply take the distance between the daily highs and daily lows of a currency pair. The technical indicator is fully customizable, and you can configure it to take into consideration as many periods as you want. Say that we adjust our ADR indicator to take into consideration five days. So, let’s say you take a 1-year period for your ADR.
Fortunately, you do not need to manually do this yourself, because the ADR indicator within your trading platform will perform this calculation. The only thing you are required to do is to select the period input you want the ADR to take into consideration. The ADR indicator has a very simple output and in most cases, you will see an additional text with the output values on your chart after you apply the indicator. The ADR indicator should show you a number for the n-periods ADR value.
USD Forex pair within the MT4 platform. We have attached the ADR indicator to the chart. Although you might not see the tool, it is right there at the top left corner of the chart. It has been marked with a small orange rectangle.
The 15-day ADR shows the number as 1165. ADR value shows 528, which corresponds to 52. Keep in mind that based on your chart settings and particular ADR indicator, the manner in which you read the pip value may differ. USD for the last 15 days equals 116.
USD has only moved with 52. USD has been relatively quiet today thus far. This can be valuable information to the trader regardless of the strategy employed. To build the current ADR range, you need the current daily low and daily high.