ADR Indicator Guide for MT4/MT5
The ADR indicator for Metatrader 4 provides traders with an estimate of anticipated market volatility. In fact, the ADR indicator plots the ADR range and the current daily range together in MT5 also. I can say that this is a volatility indicator that shows traders how much a currency pair is likely to move on a given day. It is calculated by averaging the daily high-low ranges over a specified period of time. Traders can use the ADR indicator to identify potential trading opportunities and to manage their risk.
In today’s guide, I will explain how to use ADR indicator in Metatatrader 4 & 5!
Averge Daily Range indicator FAQ
What is the ADR indicator?
Average daily range indicator is based an intraday ADR strategy. That is to say, it is employed to estimate the intraday volatility of a trading asset. To explain, the average daily range strategy engages an ADR calculator that averages differences between daily ups and downs over a specific interval of days. Generally, average daily ranges are employed to signal important changes in price activity. However, the ADR strategy only provides short-term signals for intraday traders.
Indicator formula
The average daily range computation is quite simple. In fact, it’s the average of the daily ranges of a forex pair over a specified number of days. To explain, the distance between the daily up and down is called the daily range. Consequently, the MT4 ADR indicator averages these differences between daily ups and downs over a specific interval of days in the MetaTrader terminal. Note that this period is the only setting and it is user-defined. Subsequently, this Tradingview technical indicator is a custom tool. Now, let us discover the ADR calculation strategy step by step:
- Setting the user-defined lookback period. That is to say, the number of days (n).
- Computing the Daily Range (DR) for every single day. To explain the DR computation is:
Daily Range = ( Daily Highest – Daily Lowest )
- Adding all Daily Ranges together.
- Dividing this sum by the lookback period length (n) to get the ADR value. Thus, the ADR calculator on Tradingview executes the following computation:
The ADR (n days) = [ ( DR1 + DR2 + … + DR(n-1) + DR(n) ) / n ]
ADR Example
As an example, we consider an ADR period of five days. Daily ranges between the intraday highest and the lowest prices are:
- DR1 = 20 pips
- DR2 = 16 pips
- DR3 = 10 pips
- DR4 = 18 pips
- DR5 = 14 pips
As a consequence, the ADR value is equal to:
ADR (5 days) = [ ( DR1 + DR2 + DR3 + DR4 + DR5 ) / 5 ] = (20 + 16 + 10 +18 + 14) / 5 = 78 / 5 = 15.6 pips (approximately 16 pips)
How to trade with it?
The ADR indicator in Tradingview assists Forex traders to open new trades. To explain, average daily range systems are based on ADR lines. On the one hand, when the price approaches ADR lines, a trend change may occur. Thus, you can initiate a new position in the pullback direction. In other words, you would trade inside the ADR range displayed on MT4 charts. On the other hand, when the market cuts ADR lines, a trend continuation may be confirmed. Thus, you can open a new trade in the breakout direction. That is to say, you would trade outside the ADR range shown on MT5 charts.
Trading examples
At this section, i will give many trading examples with chart. It’s so easy to read the ADR indicator on MT5 charts. In fact, it displays a simple output containing some words and values. To explain, this technical indicator screens two important information:
- N-period ADR value
- Current Daily Range value
For example, we have attached the ADR MT4 indicator to the daily EURAUD chart. On the right corner of the chart, you can monitor two values:
- The 10-days ADR value in the white rectangle (Previous 10 candles)
- Today’s daily range in the gray rectangle (Last candle)
To clarify, the ADR indicator plots values directly in pips. On the one hand, the 10-day ADR reveals a 97.9 pips value. On the other hand, it reveals a 152.3 pips value of today’s daily range. However, keep in mind that some ADR indicators may pot these values in points. Consequently, divide them by 10 to get the pip value.
ADR ups and downs
Intraday ADR ups and downs are grades that seek to define a price range on your chart. To explain, we proceed as follows:
- Add the ADR value to the intraday bottom to build the ADR superior grade. In other words, project the ADR upwards initiating from the daily lowest price. Consequently, we get the ADR superior line up to the chart.
- Subtract the ADR value from the intraday top to build the ADR inferior line. In other words, project the ADR downwards beginning from the daily highest price. As a consequence, we get the ADR inferior grade down to the chart.
Moreover, there’s a crucial interpretation based on the MT5 ADR indicator and daily range values:
- When the daily range is below the ADR, the price is ranging between ADR lines. Thus, the asset volatility is relatively low. That is to say, compared to the previous ADR period.
- If the daily range value is near the ADR, then Forex traders forecast the price to bounce. However, if it’s above and near the average daily range, then chartists expect a breakout.
- When the daily range is beyond the ADR, the price has already broken through an ADR line. Thus, the asset volatility is relatively high.
Trading inside the Average Daily Range
This forex technique suggests trading ADR lines as supporting and resistant grades. Moreover, we can notice that The daily range is lower than the ADR in this case.
As an example, we consider the M15 chart of the AUDNZD forex pair. Attaching a 5-days ADR to the chart, we get two grades. Those automatic grades are estimations of intraday limits for the price evolution.
Once, the daily range is defined, we would focus on an ADR reversal system. First, the market moved gradually towards the upper grade. Then, it changed its direction when it approached the top ADR grade. In other words, a bearish reversal just happened. Consequently, we initiate a short position there. In conclusion, the top ADR grade of the indicator has resisted the price appreciation on the chart of MetaTrader 4.
Afterward, the price dropped continuously and met the lower grade. To explain, there’s an inverted hammer formation near this grade. Thus, this candlestick formation would indicate a very probable trend change. And this is what just happened. In fact, a bullish pullback just occurred. As a consequence, we set our profit target near the ADR upper grade. In short, the downer ADR grade of the indicator has supported price appreciation on the chart of MetaTrader 5.
Considering this new example, a break up of the ADR top-line occurred. Consequently, we hold our long position if we own the currency pair. Else, we initiate a new long order with the breakout.
Trading outside the Average Daily Range
Note that the previous example is not always the case. Because, when the market approaches ADR grades of this technical indicator, there are two probable scenarios:
- The trend may reverse near ADR lines. As we have seen in the previous.
- A penetration of ADR lines may occur. In this case, we can notice that the daily range becomes superior to the ADR value.
Now we will explain the ADR breakout technique. This ADR forex trading system is so simple. To explain, when the price breaks significantly the ADR lines, follow those tips:
- If you hold the asset, keep your profitable position forward to make more pips.
- But, if you do not hold the asset, initiate a new trade in the direction of the breakup.
Download ADR indicator for MT4
The ADR is an MT4 indicator that calculates the Average Daily Range in pips value in the MetaTrader 4 platform. In addition, this MT4 indicator plots the ADR value over a user-define period along with the current daily range value. Thus, Forex traders don’t have to perform any manual calculations. Because the ADR automatic indicator for MT4 instantly performs these computations.
You can download ADR Indicator for Metatrader 4 via Finansya APP.
Download ADR indicator for MT5
The ADR MT5 indicator plots other useful information than the average daily range on the MetaTrader 5 platform. Traders are highly looking for Average Daily Range indicators that plot valuable information, other than the values :
- An ADR Start highlighting the open price of the first intraday candle.
- One ADR higher line above the ADR Start. Also, another ADR lower line below ADR Start. To explain, those two levels are helpful to define a price range. Moreover, they are colored, labeled, and valued.
Indicator Limitation
Now, i will give the limitation of this indicator to take it on consideration when you’re using it :
- It is a lagging indicator. I means that it calculates the average daily range based on past price data. This can be a disadvantage in volatile markets, where the ADR may not be able to keep up with the current market conditions.
- It does not take into account market direction. It simply calculates the average daily range, regardless of whether the market is trending up or down. This can be a disadvantage in trending markets, where the ADR may not be a reliable indicator of future volatility.
- Finally i can say that is not a perfect predictor of future volatility. The ADR indicator can only give traders an estimate of how much a currency pair is likely to move on a given day. I would like to remenber you that the market is unpredictable and there is no guarantee that a currency pair will stay within its ADR range.
Conclusion
The ADR indicator is an automatic calculator of the average daily range on MetaTrader platforms. This short-term MT5 indicator helps you to initiate intraday trades by examining the average volatility during a user-defined period. Fortunately, this could optimize your short-term trading strategy by piloting your ADR entry and exit trades and profit targets.
Key takeaways
- An Average Daily Range indicator for MetaTrader reveals the average pip range of an FX pair over a user-defined period of time.
- This ADR indicator for Tradingview plots the Average Daily Range value over a specific day period. Also, it provides you with the actual daily range.
- A price range is built from ADR up and down lines.
- ADR calculator plots automatically all information on the MetaTrader chart.
- The ADR strategy is useful to trade price bounces and breakouts.