When trading forex, it is essential to know the ADR (Average Daily Range) of a currency pair. ADR is the average range of price movement of a currency pair over a specific period of time, usually calculated over the past 14 days. It is a useful tool in determining the volatility of a currency pair and setting stop-loss and take-profit levels. In this article, we will discuss how to find the ADR of a forex pair.
Step 1: Choose a Forex Pair
The first step in finding the ADR of a forex pair is to choose the currency pair you wish to trade. Forex pairs are traded in pairs, with one currency being the base currency and the other being the quote currency. For example, if you want to trade the EUR/USD pair, the euro is the base currency, and the U.S dollar is the quote currency.
Step 2: Find Historical Price Data
The next step is to find historical price data for the currency pair you have chosen. This data can be obtained from various sources, including trading platforms, financial websites, and forex data providers. Most trading platforms provide access to historical data, and it can be downloaded in various formats such as Excel, CSV, or TXT.
Step 3: Calculate the Daily Range
Once you have the historical price data for the currency pair, you can calculate the daily range. The daily range is the difference between the high and low price of a currency pair for a specific day. To calculate the daily range, subtract the low price from the high price of the currency pair for the day.
For example, if the high price of the EUR/USD pair is 1.1400, and the low price is 1.1300, the daily range would be 100 pips (1.1400-1.1300). Repeat this process for each day in the historical price data.
Step 4: Calculate the Average Daily Range
After calculating the daily range for each day, you can calculate the ADR for the currency pair. To do this, add up the daily ranges for the past 14 days and divide the total by 14. This will give you the average daily range of the currency pair.
For example, if you add up the daily ranges of the EUR/USD pair for the past 14 days and get a total of 1,400 pips, dividing by 14 will give you an ADR of 100 pips per day.
Step 5: Use the ADR in Your Trading Strategy
Now that you have calculated the ADR for the currency pair, you can use it in your trading strategy. The ADR can help you determine your stop-loss and take-profit levels based on the volatility of the currency pair. For example, if the ADR of a currency pair is 100 pips, you may want to set your stop-loss at 50 pips and take-profit at 100 pips.
In conclusion, finding the ADR of a forex pair is an essential step in developing a successful trading strategy. It helps you to identify the volatility of the currency pair and set appropriate stop-loss and take-profit levels. By following the steps outlined in this article, you can easily calculate the ADR of any forex pair and use it to your advantage in your trading.