As a forex trader, one of the most important things you need to know is the average daily range (ADR) of a currency pair. ADR can help you understand the volatility of a currency pair, which is crucial for making informed trading decisions. In this article, we will discuss how to find and calculate the ADR of a currency pair.
What is ADR?
The average daily range (ADR) is the average range of price movement that a currency pair experiences each day. ADR is calculated by taking the high and low of a currency pair for a given period, typically 14 days or one month, and calculating the average of those ranges. ADR is measured in pips, which is the smallest unit of price movement in forex.
Why is ADR important?
Knowing the ADR of a currency pair can help you determine the potential profit and risk of a trade. If the ADR is high, it means that the currency pair is volatile and has the potential for large price movements. This can be good for traders who are looking to make quick profits, but it also means that there is a higher risk of losing money. On the other hand, if the ADR is low, it means that the currency pair is less volatile and has a lower risk of large price movements.
How to find the ADR of a currency pair?
There are a few ways to find the ADR of a currency pair. One way is to use a trading platform that provides ADR data. Most trading platforms have built-in indicators that calculate the ADR of a currency pair for you. You can also use third-party websites that provide ADR data for various currency pairs.
Another way to find the ADR is to calculate it yourself. To do this, you need to gather price data for the currency pair you are interested in. You can do this by looking at historical price charts or by using a trading platform that provides historical data. Once you have gathered the price data, you need to calculate the daily range for each day. To do this, subtract the low of the day from the high of the day. Once you have the daily ranges for a given period, you can calculate the ADR by taking the average of those ranges.
For example, let’s say you want to calculate the ADR of the EUR/USD currency pair for the past 14 days. You gather the price data and calculate the daily ranges for each day. The daily ranges are as follows:
Day 1: 90 pips
Day 2: 100 pips
Day 3: 80 pips
Day 4: 120 pips
Day 5: 70 pips
Day 6: 110 pips
Day 7: 95 pips
Day 8: 75 pips
Day 9: 85 pips
Day 10: 105 pips
Day 11: 90 pips
Day 12: 115 pips
Day 13: 80 pips
Day 14: 100 pips
To calculate the ADR, you need to add up the daily ranges and divide by the number of days. In this case, the ADR would be:
(90 + 100 + 80 + 120 + 70 + 110 + 95 + 75 + 85 + 105 + 90 + 115 + 80 + 100) / 14 = 93.57 pips
So the ADR of the EUR/USD currency pair for the past 14 days is 93.57 pips.
Knowing the ADR of a currency pair is an important part of forex trading. It can help you understand the potential profit and risk of a trade, and it can also help you determine the best time to enter and exit a trade. There are several ways to find the ADR of a currency pair, and it’s important to choose the method that works best for you. Whether you use a trading platform, a third-party website, or calculate the ADR yourself, make sure you have this information before making any trading decisions.