You have probably already heard of the Average Daily Range Indicator once or twice. Not without reason, this indicator plays an important role in trading. But what exactly does this indicator say, and how can you use it for your trading? You will find out in this blog post.
What is the Average Daily Range Indicator?
The Average Daily Range (ADR) is a technical indicator used to measure the daily price movement of a financial instrument. It is based on the difference between the highest and lowest price of the day and indicates how much movement has taken place in the financial instrument. The ADR is given as a percentage.
The indicator is often represented with a trailing number. This number indicates how many days have been included in the calculation. For example, if "ADR20" is mentioned, this means that the last 20 trading days have been included in the calculation of the average. The value of ADR20 thus reflects the average daily movement of the stock over the last 20 days.
Why ADR is important for your trading
In principle, it is so that stocks that move sufficiently should be traded. This makes it easier for you to profit from movements in the stock markets. Conversely, this means that you should avoid stocks that have a very low ADR value, as recent history shows that this stock has moved very little. Less movement means that you can participate less in a potential movement.
ADR vs. ATR
It also happens again and again that the ADR is confused with the Average True Range Indicator (ATR), which is not least due to the very similar name. In contrast to the ATR, any existing price gaps are not taken into account in the ADR indicator.