Forex Tips – Be Wary of Average Daily Ranges

I have been working closely with a small group of newbie traders recently. Working with newbies has forced me to remember a lot of Forex knowledge that I have forgotten. A lot of this knowledge has become instinctive in my trading so I use it without knowing or thinking about it. One of these pieces of knowledge is how vital knowing and being wary of a pairs average daily range (ADR) is.

Why should you worry about a pairs ADR?

Well, when a pair reaches its ADR for the day it tends to slow down, which makes it much harder to trade the pair.

Below are the current 200 day ADR figures for E/U and G/U:

E/U = 128 pips
G/U = 116 pips

Let’s imagine E/U has ranged 148 pips today, which is 20 pips beyond it’s ADR, and I see a good trade set-up on it. If entering the trade set-up will require me to set a target that goes even further beyond the ADR this trade might be a bade move. This is because statistically E/U cannot be expected to range much more than it already has. So if I enter the odds would be stacked against me from the start. You can see an example of this trade below, the green lines show the days range, the blue shows the trade entry, and the red the trade exit. As you can see after the trade entry EUR/USD ranged up 10 more pips before the price stagnated and reversed.

There will certainly be days in which the ADR is greatly surpassed so you shouldn’t immediately dismiss a trade because the pair has reached it’s ADR. However, it should definitely be a factor when considering a trade.

Check out our Forex ADR indicator.

Have any questions? Leave a comment below and I will answer them!

Leave a Reply

11 Responses

  • Andrew Caldwell says:

    Hi Nick,

    To breathe life into an old post, would you mind putting the link up for the ADR indicator?

    Thank you :)

    Andrew

  • Stephen says:

    Hi Nick,

    With the daily ADR, where should you calculate the ADR range, London Open, NY Open, GMT?
    I am currently trading Australian Market hours however am concentrating on GBPUSD, GBPJPY & AUDUSD pairs.

    thanks
    Stephen

  • Michael says:

    Hi again Nick, further to my last email l wanted to run something by you. l just remembered this nifty free indicator that places an ADR projection on your chart for you; its based off the 14 period ADR l think and places neat little lines at 80% and 100% of the range. This is the link to download it…

    http://learnforexlive.com/contents/forex-tip-intraday-target-location

    ….and l wondered if you thinkit would be a help or a hindrance!
    Thanks,
    Michael.

    • Nick says:

      Yes that is correct as long as it moves within the bounds of the range I do not expect any slow down. Only if it is moving outside the bounds of its normal range.

      I will check out that indicator, I am building something similar so it definitely consider it a help!

  • Michael says:

    Hi Nick, if a pair is at the edge of its ADR and you saw a reversal set-up l’m guessing that could be fine to take as price would be going back on itself; that is back from where it came and thus not extending the range, and even if it had travelled 150 pips it could go back another 150 without extending that range? Would that be the case and, in fact, could it help a reversal set-up if price is at the extremes of its daily range as it is then more likely to snap back? Also, whats the best look back period to use to gauge current price action please? Would it be the ADR of the past 5/10/21 or even 30 days?
    Thanks in advance; its great being able to pick your brains and get the benefit of your experience? Its a brilliant site, so thanks again for all your efforts!

  • hickh says:

    Hey there Nick, judging from the responses, I see you got more than you bargained for. (o:
    Thanks for the reminder, and stay out of London!! )o;

  • MiG says:

    Hi Nick,

    Is it possible to calculate the ADR of the GBPJPY, EURJPY, GBPUSD & EURUSD from beginning of 2011 to now?

    If yes, how do you do it?

    Thanks!

  • bliglesias says:

    sorry I forgot it
    at this point is better wait for a reversal?
    thanks

    • Nick says:

      bliglesias » This example is there only to illustrate the concept of watching out for the ADR, it is not a real trade, it is just a photoshop image I put together.

  • bliglesias says:

    Hello Nick
    I’m a newbie trader who want to work closely with you.
    I understand what you say, but.
    why enter long at this point after 4 bull candles?, is near a constant line o scalp line and wait a breakout?
    thanks
    Bliglesias

Leave a Reply

11 Responses

  • Andrew Caldwell says:

    Hi Nick,

    To breathe life into an old post, would you mind putting the link up for the ADR indicator?

    Thank you :)

    Andrew

  • Stephen says:

    Hi Nick,

    With the daily ADR, where should you calculate the ADR range, London Open, NY Open, GMT?
    I am currently trading Australian Market hours however am concentrating on GBPUSD, GBPJPY & AUDUSD pairs.

    thanks
    Stephen

  • Michael says:

    Hi again Nick, further to my last email l wanted to run something by you. l just remembered this nifty free indicator that places an ADR projection on your chart for you; its based off the 14 period ADR l think and places neat little lines at 80% and 100% of the range. This is the link to download it…

    http://learnforexlive.com/contents/forex-tip-intraday-target-location

    ….and l wondered if you thinkit would be a help or a hindrance!
    Thanks,
    Michael.

    • Nick says:

      Yes that is correct as long as it moves within the bounds of the range I do not expect any slow down. Only if it is moving outside the bounds of its normal range.

      I will check out that indicator, I am building something similar so it definitely consider it a help!

  • Michael says:

    Hi Nick, if a pair is at the edge of its ADR and you saw a reversal set-up l’m guessing that could be fine to take as price would be going back on itself; that is back from where it came and thus not extending the range, and even if it had travelled 150 pips it could go back another 150 without extending that range? Would that be the case and, in fact, could it help a reversal set-up if price is at the extremes of its daily range as it is then more likely to snap back? Also, whats the best look back period to use to gauge current price action please? Would it be the ADR of the past 5/10/21 or even 30 days?
    Thanks in advance; its great being able to pick your brains and get the benefit of your experience? Its a brilliant site, so thanks again for all your efforts!

  • hickh says:

    Hey there Nick, judging from the responses, I see you got more than you bargained for. (o:
    Thanks for the reminder, and stay out of London!! )o;

  • MiG says:

    Hi Nick,

    Is it possible to calculate the ADR of the GBPJPY, EURJPY, GBPUSD & EURUSD from beginning of 2011 to now?

    If yes, how do you do it?

    Thanks!

  • bliglesias says:

    sorry I forgot it
    at this point is better wait for a reversal?
    thanks

    • Nick says:

      bliglesias » This example is there only to illustrate the concept of watching out for the ADR, it is not a real trade, it is just a photoshop image I put together.

  • bliglesias says:

    Hello Nick
    I’m a newbie trader who want to work closely with you.
    I understand what you say, but.
    why enter long at this point after 4 bull candles?, is near a constant line o scalp line and wait a breakout?
    thanks
    Bliglesias