Entries & Exits Using The Average Daily Range
So we’ve got a quick question from somebody asking about the ADR. How do we use the ADR for finding potential support and resistance zones? And sometimes it might seem that the zone is a little bit too wide, in terms of support and resistance.
So just to quickly review, our process is quite simple for finding high probability areas for entries and exits. We use various things such as support and resistance zones, swing points, we use the most recent fair value areas we also use psychological price levels. And another one of course, like you said is the ADR or the Average Daily Range.
Now, I think the answer to this question, looking at the ADR as the most important probably. So whenever we look at potential ranges for entries and exits on a particular pair so we can look at the NZD CAD for today for example.
Whenever we look at a potential entries and exits we obviously consider all the technical things above. But we also tried to stay within that ADR and or average day range.
Now for those of you that don’t know the ADR, basically just tracks the average daily range or probable range of a pair or instrument that it can have in any particular trading day and it’s based on a predefined look-back period. So if we just quickly open up the ADR.
There we go, so we tend to use a look-back period of 10 days, which basically gives us an average range a pair or volatility range for a pair or that an instrument can expect to have based on the last two weeks of trading. And we tend to use a look-back of two weeks, just because we want to, for the most part one to stay well within that range that we’ve seen over the last two weeks, at the most recent price action over the last two weeks want to incorporate that in terms of the expected range that we can expect from any particular instrument.
So even though the areas might sometimes seem fall large, and if they are within that range, there is a very high probability for the instrument to reach those levels in that particular session.
Obviously they might be days with a pair moves much less than the range, if there is a very low volatility or not a lot of sentiment driving the pair. And then there can also be days where we see it move much further than the volatility range, due to massive ascent demand shifts that might occur in the pair. So that is basically how we stay within that boundary level so to speak.
So for the QB CAD for example, we’re not gonna look for a particular, target on this that’s 200 pips away because that’s well outside that range.
But as long as we stay within, obviously use the other technical tools that we use but as long as we stay within that ADR, there’s a very high probability that the pair can move and will move within that range throughout a particular trading session.