Introduction to the Average Daily Range Indicator (MT4)
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Day traders often lose money not because they do not know how to trade, but because greed would cause them to aim for impossible take profit targets that price is more likely not to reach.
This technical indicator is a supplementary technical indicator that would help day traders avoid setting impossible take profit targets.
What is the Average Daily Range Indicator?
The Average Daily Range (ADR) indicator measures the average range in pips for a predetermined time period coverage, particularly for the past 20 days, 10 days, 5 days, as well as the current day’s pip range. It also measures the distance between the current price from the price extremes of the range, which are the tops and bottoms.
This indicator is intended to help traders decide whether their take profit target price is realistic or not.
Average Daily Range for MT4
How the Average Daily Range Indicator Works?
The Average Daily Range indicator bases its Average Daily Range on the Average True Range (ATR) of price on the daily timeframe. The 20-day, 10-day, and 5-day Average Daily Range are basically the 20-day, 10-day, and 5-day ATRs from the daily timeframe. Today’s ADR is just the range which price has moved for the day measured in pips.
It also measures the distance of the current price to the projected high and low of price based on the 5-day ADR. It projects the top by adding the 5-day ADR to the low of today’s range, and the bottom by subtracting the 5-day ADR from the high of today’s range. It then measures the distance from the current price to the projected tops and bottoms of the range.
It also measures the direction of price in pips, indicating a positive figure if the movement is positive, and a negative figure if the movement is negative.
This indicator then displays these measurements in pips on the upper left corner of the chart.
How the Average Daily Range Indicator Works
How to Use the Average Daily Range Indicator for MT4
As mentioned earlier, this indicator is intended to help traders assess if their take profit targets are realistic or not, and if price still has some room to move in the direction of their trade based on the average daily movements of price.
As such, this indicator should be used only as a supplement to another trade setup. It does not provide trend, momentum, or reversal entry signals.
Traders should only take a day trade setup if their projected target price is still within the projected daily range.
Buy Trade Setup
When to Enter?
Open a buy trade setup only when a logical target take profit price is below the projected top based on the ADRs. Set the stop loss below the entry point.
When to Exit?
Set the take profit target on a logical resistance level below the projected top of the ADRs.
How to Use the Average Daily Range Indicator for MT4 – Buy Trade
Sell Trade Setup
When to Enter?
Open a sell trade setup only when a logical target take profit price is above the projected bottom based on the ADRs. Set the stop loss above the entry point.
When to Exit?
Set the take profit target on a logical support level above the projected bottom of the ADRs.
How to Use the Average Daily Range Indicator for MT4 – Sell Trade
As mentioned earlier, this indicator is just a supplementary indicator. It does not provide entry signals or trade direction biases just as with most indicators. However, this indicator can be very useful for day traders.