Average Day Range and Average True Range for Volatility Analysis
Summary
The document explains Average Day Range (ADR) as the simple moving average of each session’s high minus low over a chosen lookback. Traders can use it to estimate an instrument’s typical intraday price span and to inform trading plans. The discussion compares ADR with Average True Range (ATR), which averages a true-range measure that includes the current session’s high-low range and distances from the previous close to the current high or low.
Because ATR accounts for gaps between sessions, the article presents it as more suitable when overnight price gaps matter; ADR measures only the session’s high-low movement. The document provides definitions and calculation descriptions, but no market examples, empirical comparisons, or guidance on choosing a lookback. Both indicators describe historical volatility and do not establish the direction of future prices or guarantee the size of a coming session’s range.
Key ideas
- ADR averages the difference between each session’s high and low over a selected period.
- ATR averages true range, which includes potential gaps relative to the previous close.
- ADR can help estimate typical intraday movement, while ATR reflects overnight gaps as well.
- Neither range indicator predicts whether prices will rise or fall.
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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.