position your stop-loss in a logical place. When ADR is above average, it means that the daily volatility is higher than usual, which implies that the currency pair may be extending beyond its norm. The Average Daily Range shows the average pip range of a Forex pair measured over a certain number of periods. This can be valuable information to the trader regardless of the strategy employed. However, there is a big problem with trying to implement this range trading strategy: the cost of all the trades. Trading Strategy Using the Forex Daily Range After you have applied the ADR to your chart, you can utilize it in several different ways based on your personal trading style. If the market ranges most of the time, this Forex trading strategy should produce a fairly steady and positive return.
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Then you simply divide by 50 so for example lets say that eurusd has an average daily range of 100 your levels are.
You enter your first trade at 50 points from the high or low of the trading day.
The Average Daily Range shows the average pip range of a Forex pair measured over a certain number of periods.
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Of course, you have to consider that the cost per trade will usually be about.0100, so this would have produced a hypothetical return per trade of about.0125. 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. 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. You should adjust the stop so that it is located below the upper level of the ADR. The ADR indicator should show you a number for the n-periods ADR value. Traders can use the ADR to visualize potential price action outside the average daily move. For example, trade against any daily move larger than the average true range (ATR) of the previous twenty days. What if instead of trying to do something complex with Bollinger bands or moving averages, we only traded against daily moves that were greater than some predefined amount? The detailed results are shown in the table below: Currency Pair. Trading Trend or Trading Range? However for our statistical analysis here, we can use defined amounts.
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