Chapter 3 lesson 7 - The ADR(Average daily range)

Question 1

How is the ADR calculated?

Answer 1

By subtracting the low of the day from the high of the day. Please note that the ADR is calculated from 5pm to 5pm NYT.

The decimal may need to be adjusted for some pairs. EG, for GBPUSD, if the high is 1.22916, shift the decimal to between the last 2 digits, 12291.6.

We should ideally use the 5ADR, which is the average of the last 5 trading days.

Question 2

What is the advantage of using the ADR?

Answer 2

It helps us identify the potential expansion range in the NY session. EG, if London offers 80% of the ADR, then we can’t expect significant movements in the NY session, unless there’s a significant retracement into the OTE.

If Asia offers a large range, then we can expect a large range from the London session, unless a reversal is offered.