Average Daily Range (ADR); or if you like ATR; the reason to have it on our chart boils down to one aspect in the market - the range. The range of a particular market over a specified period.
Take 5 trading days' range (High - Low) and find the average, that basically sums up the definition of ADR. You might see a line chart attached to an ADR indicator (e.g. in MT4) which shows the increase or decrease of volatility over time. However, it does us not much use, as price itself will reflect it. So all we need is just the number
When you see a can of soda labeled '355ml', are you anticipating to drink more than 355 ml of it? Market is never flawless like that, but ADR helps a trader realize his expectancy of the market. By taking account of the ADR into our Target Profit confluence, we set a realistic target - sensible for price to reach.
A conservative trader will prefer taking profit a couple of pips behind the ADR just to be on the safe side. On the higher Time Frame, i.e. 4H, the final target projection usually require us to hold overnight. The risk of not actively managing our trade is never comfortable and it would help us to sleep much better by taking out some lots at the ADR.
Additionally, ADR assists traders in making decisions to ascertain a trade set-up, whether to take it or not.
Start your trading day knowing the ADR, then as you are monitoring price, be aware of the current trading range.
"Set high goals which are achievable and feasible." The ADR is a statistical tool over the specified period set that is helpful for this.
Thanks for sharing this good concept.As forex traders, we need to add knowledge to knowledge until we leave the levle of struggles and survivals for the plane of sustainable profitability.
BalasHapusBosun
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