Direct answer: calculating daily ADR in forex
Daily ADR (Average Daily Range) for a forex currency pair is calculated by finding the price range for each day (typically High − Low) and then averaging those daily ranges over a selected number of past days.
Explanation: the inputs and the calculation
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Choose the currency pair and the time definition of a “day”. A “daily” calculation depends on how your data provider defines the trading day (time zone and candle boundaries). For example, if your daily candles use a specific broker or platform time zone, the ADR should be computed from the same daily candles.
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For each day in the lookback period, calculate the daily range. The most common version uses the day’s highest traded price and lowest traded price:
- Daily Range(day) = Daily High − Daily Low
- Average the daily ranges. If you use N days of history, the daily ADR is:
- Daily ADR = (Sum of Daily Range over N days) / N
- Decide the lookback length. Common choices include short windows (to react faster) or longer windows (to smooth out noise). The formula stays the same; only N changes.
Example or checks: making sure your ADR is computed consistently
Example conceptually (with made-up numbers):
- Day 1 range = 1.20
- Day 2 range = 0.90
- Day 3 range = 1.10 If N = 3, then Daily ADR = (1.20 + 0.90 + 1.10) / 3 = 1.07 (in the same price units as your high/low).
Checks to verify your process:
- Candle alignment: recompute ADR using the same daily candle set you plan to interpret.
- Data consistency: use one data source (broker/platform) so highs and lows match.
- Units: ensure you understand whether your pair is quoted in a way that affects how you interpret the magnitude (the ADR value is always in “price movement” units from the underlying quotes).
- Reproducibility: if you change N, confirm the change is due to the lookback, not to a different time zone or candle definition.
Limitations and what ADR can’t guarantee
ADR is descriptive: it summarizes how much prices have moved on average over your chosen historical window. It does not predict a specific future range with certainty.
Key limitations:
- Time zone dependence: different definitions of “daily” can produce different highs/lows and therefore different ADR.
- Lookback sensitivity: ADR changes when you change N or include/exclude volatile days.
- Market conditions: averages smooth variability; a day can still move far above or below the historical ADR.
- Not a trading signal: ADR alone does not establish direction, timing, or outcomes.
Finally, if you need to compare ADR across pairs or platforms, make sure the daily candles come from the same candle boundaries and the same method (High − Low) over the same N. This keeps the comparison meaningful.