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ADR Formula:
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The Average Daily Range (ADR) calculates the average price movement of a security over a specified period. It helps traders identify volatility patterns and set appropriate stop-loss and take-profit levels.
The calculator uses the ADR formula:
Where:
Explanation: The formula calculates the average daily price range by dividing the total price range by the number of days in the period.
Details: ADR is crucial for risk management, position sizing, and identifying high-volatility trading opportunities. It helps traders understand normal price movements and avoid being stopped out by normal volatility.
Tips: Enter the high and low prices in the same currency units, and specify the number of days for the calculation period. Ensure high price is greater than low price.
Q1: What is a good ADR value for trading?
A: It depends on the security and trading strategy. Higher ADR indicates more volatility, which can mean greater profit potential but also higher risk.
Q2: How is ADR different from ATR?
A: ADR uses only high-low range, while ATR (Average True Range) considers gaps and includes previous close in its calculation for a more comprehensive volatility measure.
Q3: What time period should I use for ADR calculation?
A: Common periods are 14, 20, or 30 days. Shorter periods react faster to recent volatility, while longer periods provide smoother, more stable readings.
Q4: Can ADR be used for all markets?
A: Yes, ADR can be applied to stocks, forex, commodities, and cryptocurrencies. However, interpretation may vary by market and asset class.
Q5: How should I use ADR in my trading strategy?
A: Use ADR to set realistic profit targets and stop-loss levels, typically as multiples of the ADR (e.g., 0.5x ADR for tight stops, 1x ADR for targets).