Trading the Average Daily Range

Trading the Average Daily Range

The Daily Range Projections are what we’ll be focusing on in this indicator spotlight. Based on the volatility of the previous N days, they show support/resistance levels and potential expansion goals.

These values are represented by Average Daily Noise (ADN) and target predictions, such as Average Daily Range (ADR) and Average Daily Extension (ADE). Watch the video or read on for more information on the Daily Range Projections and the Average Daily Range:

Noise Bands

The smaller (High – Open) and (Open – Low) averaged over N days is called the daily noise. One can locate the upper ADN band by including the anticipated noise in the existing open. On the other hand, you can find the lower ADN band by taking it away. To reach these levels, significant action is required. As a result, higher timeframe traders are involved if the market swings past the noise bands.

The same rationale underlies the session indicators is also behind the ADR indicator. Therefore, you may extract the OHLC data from the daily or intraday data. Naturally, daily data takes into account prolonged sessions that take place on public holidays and reflects the contractual parameters of the instruments. As a result, the default configuration is set to use daily data.

Using the Average Daily Range as a Profit Target Once the price has moved outside the noise bands, targets and average daily range projections are used. The marks can be calculated in one of two ways:

The larger of the (High – Open) and (Open – Low) Daily Expansion Bands, averaged over N days, show us the average expansion beyond the daily noise.

The Average Daily Range, namely adding it to the projected high or taking it from the projected high based on the current low (low projection). The ADR bands automatically adjust to the high and quiet of the present day until the anticipated daily range is met. The bands will freeze after that.

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Identifying Setups that are Directional vs. Reversal

Markets range about 80% of the time. Therefore you should know where the price is trading concerning the ADN levels. You can consequently look for price rejection at the first test of the high/low bands, represented by spike or reversal patterns.

On the other hand, if we look past the usual everyday noise, it indicates institutional participation. One might search for momentum entries in that circumstance. One method for verifying breakout scenarios is the Ichimoku indicator, highlighted in a previous spotlight.

Conclusion

The Daily Range Projections keep tabs on potential targets and daily noise averages. Targets can be chosen using the average daily range or the daily expansion bands. In addition to the Daily Range Projections, our NinjaTrader Indicators Library now provides Weekly Range Projections and Monthly Range Projections, allowing you to decide whether to seek momentum or reversal entry across various time frames. For controlling available profits, you can also look at our indicator spotlights on the Wilder Volatility Stop and ATR Trailing Stop.

NinjaTrader 8 supports the indicator.

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