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.
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.’
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.
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.
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:
What is ADR?
Nitty Gritty Behind ADR
Uber Forex Broker
TradingSmarts Wins Award#4
Dealing Desk (DD) Broker
Non-Dealing Desk Broker
Inspiration and Quotes
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.
(Chart via ProRealTime.com)
(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.
(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.
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.
(ECN Broker and STP Broker)
See last blog post on 10 forex wealth strategies for definitions of ECN Broker and STP Broker.
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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.
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.
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.
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.
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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.
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.
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About Peter R. Bain
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.
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