The Average Daily Range is a measure of volatility (typically across 5 days for the FX markets). I originally saw this being used in a trading system called ANTSSYS by Daryll Guppy and some other developers. I couldn't find it anywhere so I decided to build it from scratch.
What this does is allow you to measure volatility across various FX assets (I will apply other asset classes in the future that this is applicable to i.e. Crypto, Commodities, Blue Chip Stocks), and set realistic targets based off that volatility. Overall, this makes much more sense to me in the FX markets rather than support and resistance lines because it's based off the actual movement of the asset class. Market research shows that an asset class has a 80-85% chance to reach 75% of it's Average Daily Range (ADR).
Let's take a look at the daily ADR on the GBPNZD 15m chart. Notice how the values of the ADR act as real support and resistance based off the volatility of the asset. In this case, price did not quite reach the 75% ADR target.
Let's take a look at another example on EURNZD 15m chart. In this case, price hit the 75% target.
It's important to note that these levels do not bound the price. The probability that price exceeds it's 75% ADR is fairly low, but not impossible. Especially during important news events. Let's look at the recent USDCHF 15m chart for example.
Additionally, you can use these values to measure longer term movements (Weekly, and Monthly)
Here is a weekly view:
And a monthly view:
HOW I USE THIS
I use this in conjunction with some other indicators I've developed. Typically, I use range bars since I only care about price, not time. Additionally, averages are smoother when time is not taken into account and only price.
HOW THE CANDLE OPEN AND CLOSE IS CALCULATED
This is done based off of your own specific time zone and from the daily candle. So for me on PST, the daily candle will close at 1400. Once closed, a new ADR value is automatically calculated and added to the chart. There is an option to show past ADR values if you would like to see them or conduct additional research.
- Added support for Crypto
- Add recommended Swing and Scalp ranges (Note: these recommendations are baselines for range bars)
- Adjusted some formatting for the labels
PATCH NOTES DETAILED
- Support for Crypto is now here! It seems to working very well too. Let's take a look at the dumb of BTC that happened recently. Was it a life changing dump? Was it the end? Of course not, it was just 75% of the ADR expected volatility
- Support for recommended Swing and Scalping range bar sizes has been added. Please note that these are baselines and ones that I use. You can change your range charts to whatever you like.
- Support for Commodities
- Support for Indices
- Support for Stocks
- Fixed bug that was preventing the recommended scalping ranges to show
- Adjusted some formatting and coloring
ADDITIONAL TIPS ON USEAGE
I hope you are all finding success in your trades, and if you are using this indicator, here is an additional tip on how to get more value out of it.
When using the daily resolution, you might be wondering why price stops in certain areas. A very good thing to check is the same time frame on the monthly view. For example, take a look at the 15m chart of GBJPY. Notice how price shot through the 100% level and then bounced.
Unless further analysis is done, it can be a mystery why price bounced there. Moving the same 15m timeframe to the monthly resolution, we get our answer.
Using this method can be a fantastic way of positioning yourself and taking profits for longer term trades.
Wishing you all the best
In true TradingView spirit, the author of this script has published it open-source, so traders can understand and verify it. Cheers to the author! You may use it for free, but reuse of this code in a publication is governed by House Rules. You can favorite it to use it on a chart.