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Average Daily Range (ADR)

Quick Answer

Average Daily Range (ADR) is a volatility measure that shows the average distance between an instrument’s daily high and daily low over a selected number of past trading days. It helps describe how widely the market has typically moved within a day, but it does not predict price direction or guarantee a future trading range.

How does Average Daily Range work?

ADR begins with the trading range for each day:

Daily Range = Daily High − Daily Low

The ranges from a selected number of completed trading days are then averaged.

A simplified formula is:

ADR = Sum of daily high-low ranges ÷ Number of days

For example, a 10-day ADR takes the high-low range of each of the previous 10 trading days and calculates their average.

TradingView describes ADR as a volatility indicator based on the average of historical price ranges. Its ADR calculations use the difference between daily highs and lows rather than incorporating gaps relative to the previous close.

The lookback period can vary. A trader might calculate ADR over 5, 10, 14, 20 or another number of days depending on the purpose of the analysis. There is no single period that is universally required.

Key features of Average Daily Range

Several characteristics are important when interpreting ADR:

  • It measures daily volatility: ADR describes the typical high-to-low movement of an instrument over recent trading days.

  • It uses daily highs and lows: Standard ADR focuses on the difference between each day's highest and lowest prices.

  • It is non-directional: A large ADR does not indicate whether prices are rising or falling.

  • Higher ADR means wider recent ranges: An increasing ADR generally indicates that daily price movement has expanded.

  • Lower ADR means narrower recent ranges: A declining ADR generally indicates quieter recent price behaviour.

  • It differs from ATR: ADR normally uses daily high-low ranges, while Average True Range can also account for gaps between the previous close and the current trading range.

  • It is based on historical movement: ADR provides context from previous sessions rather than a guaranteed boundary for the current day.

Simple Average Daily Range example

Suppose an instrument recorded these daily ranges over five trading days:

Day 1: $4
Day 2: $6
Day 3: $5
Day 4: $7
Day 5: $3

Add the ranges:

$4 + $6 + $5 + $7 + $3 = $25

Then divide by five:

$25 ÷ 5 = $5

The five-day ADR is therefore:

ADR = $5

This means the instrument moved an average of $5 between its daily high and low during those five sessions.

It does not mean the next day's range will necessarily be $5. The market could move less or substantially more.

This example is illustrative only and does not represent actual FxGrow prices, trading conditions or expected market movements.

Potential benefits and uses

ADR may help traders understand how active an instrument has been on a typical trading day.

It can be used to:

  • compare today's developing range with recent daily ranges;

  • identify periods of expanding or contracting volatility;

  • place current intraday movement in historical context;

  • compare an instrument's recent activity with its own earlier behaviour;

  • provide a volatility input for systematic or discretionary analysis.

Some traders also compare the current day's high-low movement with ADR to estimate how much of its recent average range has already occurred. TradingView's ADR tools similarly present the measure as historical context for typical movement.

However, reaching 100% of ADR does not mean the market must stop moving.

Risks, limitations and common misconceptions

A common misconception is that ADR predicts how far a market will move today. It does not.

ADR is calculated from historical daily ranges. A current session can remain well below its recent ADR or move significantly beyond it.

Another misconception is that ADR indicates direction. It does not distinguish between bullish and bearish movement. A market can record a large daily range during either a strong advance or a sharp decline.

ADR should also not be confused with Average True Range (ATR). ADR typically measures the average daily high-low range, while ATR includes true-range calculations that can capture price gaps relative to the previous close.

Comparing raw ADR values across instruments can also be misleading when their prices differ significantly. A $5 ADR represents very different relative movement for a $25 instrument and a $500 instrument. In such cases, ADR can also be expressed as a percentage of price for easier comparison. TradingView describes ADR% as the average daily range expressed relative to the asset's current price.

Finally, ADR-based targets, stops or range projections do not eliminate market risk, gaps, slippage or unexpected volatility.

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