Market Mechanics
Algorithmic & Financial Definition
Average Daily Range (ADR)
Quick Definition
The average number of pips or price distance an asset moves between its daily high and daily low over a specified period (e.g. 14 or 20 days).
Detailed Explanation
ADR measures instrument volatility. For instance, Gold (XAUUSD) typically has an ADR of 250–350 pips, whereas EUR/USD moves 60–80 pips. Algorithmic traders adjust take-profit targets and stop distances according to dynamic ADR metrics.
Key Trading Rules & Takeaways
- Calculated over 14 or 20 daily bars.
- Determines realistic intraday take-profit and stop-loss targets.
- Crucial for setting dynamic volatility filters in automated systems.
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Frequently Asked Questions
How does ADR help in trading?
If a pair has already moved 100% of its ADR for the day, entering trend-continuation trades carries elevated reversal risk.