The Average Daily Range (ADR) refers to the price movement (difference between the high and low price) of a currency pair during a trading day.
What Are the Uses of Average Daily Range (ADR)?
The Average Daily Range (ADR) is used to estimate market volatility, set take profit (TP) and stop loss (SL) levels, and improve risk management. The key applications of ADR include:
Estimating Market Volatility
The Average Daily Range (ADR) helps assess the volatility of a currency pair throughout the trading day. This allows traders to anticipate potential price movements.
Setting Take Profit and Stop Loss Levels
Using ADR, traders can set take profit (TP) and stop loss (SL) levels with greater accuracy, as it provides insight into the expected price movement range for the day.
Risk Management
By considering the daily range, traders can avoid entering trades in extreme volatility conditions or during low-liquidity periods.
How to Calculate ICT Average Daily Range?
Historical price data is analyzed to calculate the ICT Style Average Daily Range. This data reflects the average difference between the high (HOD) and low (LOD) prices of a currency pair over time. Steps to calculate ADR:
- Collect historical price data for the selected currency pair;
- Identify the High of the Day (HOD) and Low of the Day (LOD) for each day within the chosen time frame;
- Calculate the daily range by subtracting the low from the high;
- Sum the daily ranges and divide by the number of days to find the average.
ADR Tools and Indicators
For quick ADR calculations, manual computation is unnecessary. The ADR value can be obtained directly from the indicator developed by TFLab:
- ADR Indicator for MetaTrader 4
- ADR Indicator for MetaTrader 5
- ADR Indicator for TradingView
Integrating ICT Average Daily Range with Intraday Strategies
The Average Daily Range (ADR) is useful in intraday trading and Smart Money Concept (SMC) strategies. This tool allows traders to predict daily market movements and enhance their strategies.
Conclusion
The Average Daily Range (ADR) is a valuable tool for estimating daily market volatility. It helps determine the expected price movement range of a currency pair throughout the day.
Additionally, ADR can be used to set take profit, stop loss levels and optimize risk management.
