Certain measures influence traders’ options in the financial market. Volatility is one such measure. It refers to how much asset prices deviate from the mean price. Volatility leads to price unpredictability making more volatile assets riskier than less volatile ones.
What is an Average Day Range Indicator?
The ADR indicator is a technical tool that accurately measures asset volatility in the financial market. It calculates the average difference between the highest and lowest prices of an asset within a time interval. It identifies tradable assets by highlighting significant price changes. To calculate ADR, sum the value of differences in highs and lows in a day over several days and divide the sum by the number of days. (Play around with tradingview’s advanced charts for free).
Features of the Average Day Range Indicator
• It is a technical measure of volatility.
• It is used over whatever interval one chooses.
• The depth of the peaks and dips of an ADR indicator chart depends on the difference between the highest and lowest prices.
• In events that cause general market volatility, the ADR indicator may give false signals.
How it Works
The ADR indicator trend depends on the difference in the highest high and lowest low in an interval. Therefore, the indicator increases or decreases regardless of whether prices increase or decrease. (Click this link to check when the next NFP is scheduled).
Trading up
Experts recognize a strong trend when the indicator rises, and encourage opening up trade.
Trading down
If the indicator decreases, they consider it weak discouraging opening trades.
Bottom Line
The ADR indicator signals entry and exit points for traders by measuring asset price volatility. It is essential in trading up and trading down. DGM Tech Solutions offers a trading tools series that helps trades up their game. For more information on how to use ADR, contact us today.