ADR Indicator: Average Daily Range Exposed

Picture of ruler with title ‘Average Daily Range’ in the top-left corner.

Hi friend! If you are looking to trade the forex with an ADR indicator, you’ve come to the right place for the facts.  That’s why I have titled this blog post ADR Indicator:  Average Daily Range Exposed.

In preparation for this blog post, I did my homework as usual.  I read what others have said on the topic.  Most of it is pure unadulterated crap written by people who have no practical experience with the forex.

This is an important subject that deserves serious treatment.  That’s what you’re going to get from me.  No BS, take-no-prisoners – nothing but the honest-to-goodness truth.

I’ll start off by saying you don’t need some hyped ADR indicator to trade with average daily ranges, as others have suggested.

There is an indicator that measures ADR, but it simply isn’t required, as you’ll soon see – keep reading.  It only serves to clutter your chart, making it harder for you to see what price is doing.

I’ll show you how to calculate the ADRs, and then how to use the results to improve your trading results.

I’m not going to get into Average Daily True Range (ADTR), as that takes into account gaps, which are prevalent in commodities.  Given the lack of gaps in the forex, that concept is basically irrelevant here.

That’s my opening rant.

And now for my forex tip, and then I’ll jump right into it.

Forex Tip

I don’t know if you know this, but Thomas Edison, creator of the light bulb and the phonograph, used to call the people who worked in his laboratory, ‘muckers.’

Know why?

They were called muckers because he wanted to instil a culture of ‘mucking around,’ and testing various approaches and inventions.

After all, what good are inventors and scientists if they don’t… well… invent?

By paying close attention to my blog posts, you certainly don’t have to ‘muck around,’ trying to figure things out.

I’ll give you an example – just one of many… when you enter a trade, do so with two lots, making sure to initiate stop loss placement at 30 pips.

Then, when price moves in your favour to the tune of 20 pips which it will, if you follow my teachings, move your stop to breakeven, and leave it there.

I don’t believe in trailing stops, as price can very easily come back and take them out, before it continues its journey in the original direction.

After achieving 20 pips, sell a lot, leaving one in play.  That way, you immediately bank some money with one lot still ‘live.’  Let that one run to its logical conclusion.

By doing it this way, you will lock in your 20 pips for the day.  If you do this every day, by the end of the month you will realize US$4,000. using standard lots – not to mention the added profits from letting the second lot run its course.

What is ADR?

Quite simply, ADR (Average Daily Range) is the average of price movement over a period of time.  It can be used as a gauge of how far price may move on any given trading day.

Reality Check

The Hoover Dam was built in five years.  What are you going to accomplish over the next five years?  If you don’t have a goal in mind, you will get somewhere, but it may not be where you want to be.

Table of Contents:

Intro
Forex Tip
What is ADR?
Reality Check
Nitty Gritty Behind ADR
Uber Forex Broker
TradingSmarts Wins Award#4
Definitions
Market Maker
Dealing Desk (DD) Broker
Non-Dealing Desk Broker
Forex Tools
References
Inspiration and Quotes
Conclusion

Picture of curtain with the title ‘ADR Exposed’ in the middle.

Nitty Gritty Behind ADR

First the preamble… the only way to know what the true Average Daily Range (ADR) is is to calculate it manually, which is no big deal.  For this exercise, it only took me only a matter of minutes.  It’s nothing to fret about.

I do not like to use the ADRs posted on the ’Net because, for the most part, they are outdated – in some cases, ridiculously so.

Nor do I use an ADR Indicator or an Average Daily Range calculator – no need to, when you see how easy it is to calculate your own ADRs.

I like to work with numbers for Tuesday, Wednesday, and Thursday of each week, because I want to stay away from weekends.

So, for this exercise, given I am writing this on Sunday, November 20/16, I zeroed in on the four weeks leading up to that date – the weeks of October 23/16, October 30/16, November 6/16, and November 13/16.

I simply went to the daily chart at ProRealTime.com, and selected the daily chart for the USDCAD pair.  It could have been any pair but, being Canadian, I have an affinity for that pair.

Simply by moving my mouse to each day of the week (Tuesday, Wednesday, and Thursday), up popped a dialogue box that gave me the range for each day.

I ended up with 12 figures, averaged them out at 101 pips, and that was the ADR that was closest to current price action.  One of the published ADRs on the ‘Net for this pair is 90 pips – so not too far off.

But, I would rather figure my own out, as close to the price action I am working with, to get a better and more accurate reading that will let me know how far price could possibly travel in the here and now.

So, let’s inspect the daily and 1 hour charts below to see what this looks like in practical terms.

Starting with the daily chart (the first one below)… I have already shared with you how I figured out the ADR by selecting the immediately preceding four weeks, and then inspecting each day of the respective week to ascertain the range for that day.  Adding all 12 days together, and then coming up with an average, gives you the ADR you should be working with.

On the daily chart below, I am only highlighting the price movement (73 pips) for the day I am working with for this blog post – not the individual days I used for the ADR calculation.

As presented above, I calculated the ADR by working with the prior four weeks.

USDCAD daily chart with daily range info on it – ADR plus range for Nov. 18/16, Golden Cross & MACD.

(Chart via ProRealTime.com)

USDCAD 1 hr. chart showing trading with Average Daily Range (ADR).

(Chart via ProRealTime.com)

Commentary Lifted off Chart

In case you are having difficulty reading the commentary on the 1 hour chart above, I have lifted if off, and reproduced it below.

But first, a word on the daily chart above the 1 hour chart… the USDCAD put in 73 pips November 18/16.

I found that out by simply moving my mouse cursor over that date on the daily chart at ProRealTime.com, and presto there was the range for that day in the dialogue box, presented as ‘high-low.’  See below. 

That was the best I could do in terms of capturing a picture of the box.  Sorry it is so fuzzy and small, but you get the idea.

USDCAD daily chart with dialogue box showing price movement range for Nov. 18/16 of 73 pips.

(Chart via ProRealTime.com)

The most recent ADR was calculated to be 101 pips, so this day fell short.  It just goes to show you that you can’t rely solely on the ADR for trading purposes, but it is useful, as you will see below.

Chart Commentary

Friday, November 18/16, price opened overbought, according to MACD.  We knew, according to the ADR calculation, that price had to find 101 pips at most, and it wasn’t going to find them up.  They would be down, given the overbought status of MACD.  Price proceeded to swoon, and then form a double bottom (DB).

It was logical to conclude, at that point, that that was the end of the run down, given we were getting pretty close to the end of the day.  As it turns out, the total range for the day day was 73 pips (1.3565-1.3492), well short of the ADR of 101pips.

As you can see, the ADR is just a guide as to how far price is going to ‘reach,’ either up or down.  Interestingly enough, as at this writing, price has swooned even further today (Sunday, November 20/16) – down another 25 pips, bringing the total swoon so far since Friday, November 18/16, to 98 pips, which is just shy of the 101 mark.

It’s okay to lump Friday and Sunday together in terms of tallying up the pip movement in comparison to the ADR, because both days are short days, given the market closes late Friday afternoon, and re-opens late Sunday afternoon.

I hope this blog post ‘ADR Indicator:  Average Daily Range Exposed’ has opened your eyes to what ADR is all about, and how to use it properly.

Uber Forex Broker

Tallinex

(ECN Broker and STP Broker)

See last blog post on 10 forex wealth strategies for definitions of ECN Broker and STP Broker.

How would you like leverage as high as 1:1000?  Well, look no further.  You can have it at Tallinex.

You can trade better, easier, and faster on any one of their forex trading platforms.

Here are seven features available at Tallinex (just click on that link to join up):

  1. MT4 software
  2. Free signals
  3. Free forex charts
  4. ECN raw spreads
  5. Forex managed accounts
  6. Mobile and tablet apps
  7. Leverage up to 1:1000

In case you missed it in the list above (#5), yes you can have your account managed for you at Tallinex.  How cool is that?

And, they are mobile-friendly.

You can open a free, no-risk, no-strings demo trading account at Tallinex.

Once you are comfortable with their forex trading platforms, and know how to navigate your way round, you are ready to open a live trading account. 

Tallinex is open all week, except for Saturday.

As soon as you sign on with Tallinex, you will start receiving advisory e-mails and technical reviews. 

These are the personal account options at Tallinex:

The personal account options at the forex broker Tallinex.

(Disclaimer and Note: Please make sure your country of residence allows you to trade at Tallinex.
Plus, please note that I am an affiliate for Tallinex.)

TradingSmarts Wins Award#4

Award presented to TradingSmarts for Best in Forex Trading by Acquisition International Magazine.

This is in addition to:

Leader in Currency Trading – British Columbia
Award for Excellence in Forex Trading Canada
Stock Market Investment Strategist of the Year – Canada

(All three awards presented by Wealth & Finance International)

Definitions

Market Maker

A Market Maker MM is a company (usually a broker) that trades its own account, and offers an ask (sell) price and a bid (buy) price for a financial instrument – the objective being to profit from the difference between the two, called the spread.  

If you are selling a financial security, the market maker will take the other side of your position, and then seek to offset the risk by finding a buyer.

Similarly, if you are purchasing a financial instrument, the market maker will sell from its inventory, and then seek to offset the position to find a buyer.

Dealing Desk (DD) Broker

A dealing desk broker acts as the counter-party of its clients’ trades.

It sets the bid and ask price at which they are prepared to buy and sell. Accordingly, the clients can always fill their orders.

This way a dealing desk broker is also considered to be a market maker.

There is no conflict of interest because such a broker publishes the price at which they are willing to buy and sell, and the trader can accept or reject those conditions.

Rarely will an order placed with such a broker reach the interbank market.  It will likely stay within the confines of the broker’s own liquidity pool.

A dealing desk broker makes money by buying at lower prices and selling at higher prices.

This means that it makes money whether markets are rising or falling by profiting from the off the spread between the bid and ask price.  

It also means it can offer fixed spreads.

Non-Dealing Desk (NDD) Broker

A non-dealing desk (NDD) broker matches a client’s order with a counter-party, and does not take the other side of their client’s trade.

Being the opposite of a dealing desk broker, it will often also be a type of straight-through processing (STP) broker . 

See last blog post on 10 forex wealth strategies for a definition of such a broker.

If a client opens up a buy order with such a broker, a third party sells to the client, and the broker matches them up.

If the client sells, it sells to a third party to which it has been matched by the broker.

A non-dealing desk broker makes money by adding a mark-up to the bid and ask prices it provides to its clients.

Forex Tools

If you would like to have a good support and resistance MT4 indicator, let me know at the Contact link.  Also request the best pivot point calculator, if you would like that too.

A pip value calculator can be had here:  http://ca.investing.com/tools/forex-pip-calculator

If you understand what I have laid out for you in this blog post, you don’t really need an ADR indicator or an average daily range calculator.

At www.ProRealTime.com, you can use a number of forex trading indicators, including a forex support and resistance indicator to calculate forex pivot points.

If you’re looking for a good book on trendlines, consider Tom DeMark’s New Science of Technical Analysis.

References

http://ca.investing.com/tools/forex-pip-calculator

http://en.tradimo.com/tradipedia/dealing-desk-broker/

http://en.tradimo.com/tradipedia/market-maker/

https://www.prorealtime.com/en/

https://www.quora.com/What-is-the-difference-between-a-market-maker-broker-and-a-dealer

Inspiration and Quotes

“Slow and steady wins the race.”

“Never be afraid to fail.”

“When you’re in a valley, you know a mountain is right around the corner.”   Ainsley Earhardt, Fox TV

“It’s hard to beat a person who never quits.”  Babe Ruth

“The service you do for others is the rent you pay for your room here on earth.”  Muhammad Ali

“Maturity is learning to walk away from people and situations that threaten your morals, peace of mind, self-respect, self-worth, or values.”   Contributed by Melani Tremblay, Owner, VictoriasQuitSmokingClinic.com, SeaSideHypnosis.com

“A person who says that something cannot be done should get out of the way of the person who is doing it.”  Chinese proverb

“The cornerstone of communication and networking is respect.”  Susan Roane

“I’ve learned that people will forget what you did, and what you said, but they will never forget how you made them feel.”  Maya Angelou

“It takes 20 years to build a reputation, but only five minutes to destroy it.”  Warren Buffett

“With a new day comes new strength and new thoughts.”  Eleanor Roosevelt

“Your business is never bad or good.  It is either bad or good between your own two ears.”  Zig Ziglar

“The first step to going somewhere is the decision that you are not going to stay where you are.”  Anon

“Fears are simply a state of mind.”  Napoleon Hill

“Being human means being able to look at every life form with a sense of tenderness.”  Sadhguru

“You can achieve it, if you can dream it.”  Zig Ziglar

“Do it with passion, or don’t do it at all.”  Contributed by Vidal Allen

“A single dream is more powerful than a thousand realities.”  J.R.R. Tolkien

“Nobody knows anyone, not that well.”  Tom Regan, protagonist in the Coen Brothers’ Miller’s Crossing – a favourite movie of all time

“Avoiding stupidity is easier than seeking brilliance.”  FarnamStreetBlog.com

“Try to profit from always remembering the obvious than grasping the esoteric.”  FarnamStreetBlog.com

“Today will never come again.  Be a blessing.  Be a friend.  Encourage someone.  Take time to care.  Let your words heal and not wound.”  TrustYourJourney.com 

“It starts with hello.”  Victoria Graham, B.TM

“When you pray to God, make sure your feet are moving.”  Anon

“Row, if there is no wind.”  Latin proverb

“Trust your first gut instincts.  When you feel in your heart and soul that something is wrong, it usually is.”  Lessons Learned in Life

“The rule of sales:  just smile and wave, when in doubt.”  The Daily Sales

“Don’t be impressed by degrees, followers, money, and titles.  Be impressed by generosity, humility, integrity, and kindness.”  Collective Evolution

“The biggest communication problem is, we don’t listen to understand.  We listen to reply.”  John Toner, V.P. at United Fresh

“Live beneath your means.  Return everything you borrow.  Stop blaming other people.  Admit it when you make a mistake.  Give clothes not worn to charity.  Do something nice, and try not to get caught.  Listen more, talk less.  Every day take a 30-minute walk.  Strive for excellence, not perfection.  Be on time.  Don’t make excuses.  Don’t argue.  Get organized.  Be kind to people.  Be kind to unkind people.  Let someone cut ahead of you in line.  Take time to be alone.  Cultivate good manners.  Be humble.  Realize and accept that life isn’t fair.  Know when to keep your mouth shut.  Go an entire day without criticizing anyone.  Learn from the past.  Plan for the future.  Live in the present.  Don’t sweat the small stuff.  It’s all small stuff.”  Sonja Andersen, Andersen by Design

“Ten things that require zero talent:  attitude, body language, being coachable, effort, energy, doing extra, passion, being prepared, being on time, and work ethic.”  Lazaro ‘Larry’ Leon, Jr.

“Keep your friends close and your enemies closer.”  Anon  

Be persistent.  It took Trump five weeks to get Melania’s phone number, after he first met her.

Be sure to always seek out the truth, when you are looking for words of wisdom in terms of bona fide trading information.  ADR Indicator is no exception.

The 20 habits of eventual millionaires.

Conclusion

There you have it my friend… the truth and nothing but the truth about Average Daily Range (ADR).

I hope this blog post – ADR Indicator:  Average Daily Range Exposed – has been instructive for you.

As I stated at the outset, don’t rely on ADRs posted on the ’Net.  They are for the most part outdated and useless.

Instead calculate them, as I showed you how to.  It’s no big deal to do so, and you will have ADRs that you will have confidence using.

Accordingly, don’t go looking for an ADR indicator.  It’s easier and far more accurate to calculate your own average daily range. 

If you feel you need some more free forex training, because you are just now learning forex trading, let me know at the Contact link.

One-on-one forex trading lessons are available, as well as engaging me as your forex mentor.

I can also provide private forex consulting, should you need that too. 

Forex wealth management, a la forex managed accounts, is available to you at Tallinex.

I trust that you liked this free forex training.  Stay tuned for more forex trading lessons coming up in future blog posts.

Be aware that you can contact me at any time no matter the reason.

There’s a whole lot more waiting for you in my previous blog posts:  VIX, After Hours Trading, Trading Volume, Stock Trading Stops, Currency Trading Strategy, How to Pick Stocks, Stock Trading Rules, Three Winning Stock Trading Strategies, Forex Trading Techniques, Forex Pivot Points, MACD Divergence, and Ten Forex Wealth Strategies.

Don’t forget to check me out at the About link.

If you would like to help me start a forum and be a moderator, I would love to hear from you.  Just drop me a line using the Contact provision at the bottom of my site.

If you would like to be featured in my blog, I would love to share your success story – or even your trading experience.  Please send me a message using my Contact form at the bottom of this page.

I won’t live long enough to know it all, and I won’t live long enough to make all the mistakes myself.  So, hearing your story will be most helpful not only to me, but also for my other beloved readers.

Please share this post.  Sharing is caring.  Thank you!

I look forward to your articles, feedback, ideas, stories, and suggestions for my blog.  Please post these on my blog at the Contact link below.  

HAVE FUN and ENJOY LIFE!  Remember – FAMILY comes first!

Here’s To Your Success and Quality of Life,

prbain

Peter R. Bain
PS:  Don’t let them steal your dreams!
PPS:  I will help you achieve your dreams!

About Peter R. Bain

Picture of Peter R. Bain, founder of www.TradingSmarts.com – the go-to site for all things trading.

Peter R. Bain

I am a speaker, trader, writer, aviator, car nut, Harley enthusiast but, above all else, I am here for you at TradingSmarts, which I founded some 15 years ago.

TradingSmarts is your best friend when it comes to finding anything and everything to do with trading.  Through my blog you will always find guides, news, reviews, tutorials, and much, much more.

TradingSmarts is a ‘NO-BS, No-Holds-Barred, Take-No- Prisoners’ site for traders who want the straight-bill-of-goods on how to make a full-time income trading less than part-time. 

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Welcome to TradingSmarts!

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Peter R. Bain

I am a speaker, trader, writer,
aviator, car nut, Harley enthusiast
but, above all else, I am here for you.

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