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Whale Trading

ADR: Using Average Daily Range for Targets, Stops, and Daily Loss Limits

In this article we focus on ADR (Average Daily Range).

If ATR tells you the typical move per bar on your timeframe,
ADR tells you, more simply:

“How far does this market
typically move in one day (on the daily chart)?”

With that perspective, ADR helps you:

  • set realistic daily targets for day trades,
  • avoid chasing moves after most of the day's range is already done, and
  • connect to risk-management
    when designing daily loss limits.

The diagram below shows:

  • Top: recent daily high–low ranges and their average (ADR),
  • Bottom: how much of ADR today’s move has already consumed,
    expressed as a percentage.

Once you understand this picture, you can quickly answer:

  • “Is today still a small-range day relative to ADR?”
  • or “Has today already become a stretched, over-extended day
    relative to its average range?”

1. What Is ADR? – Average Daily Range

A common definition of ADR is:

  1. For each daily bar, compute
    High − Low = that day’s range.
  2. Take a moving average over the last N days
    (e.g. 14, 20, etc.).

So ADR tells you:

“Over the last N days,
the market moved about this much per day on average.”

Compared to daily ATR:

  • both try to capture daily volatility,
  • ATR often uses a True Range definition (including gaps),
  • ADR is usually introduced as a simpler High–Low average.

In practice, the exact definition matters less than:

  • using ADR as a rough baseline for daily movement
    when planning intraday trades and limits.

2. ATR vs ADR: Different Use Cases

A quick summary:

  • ATR
    → typical movement per bar on a given timeframe.

  • ADR
    → typical movement per day on the daily chart.

So the main uses differ:

  • ATR:
    • as in atr,
      is best for stop distance and position sizing.
  • ADR:
    • is best for deciding whether your daily targets are realistic, and
    • whether you are late-chasing a move after most of the daily range
      has already been used.

They are not competing;
they are two complementary “volatility rulers” from different angles.

3. Using ADR to Set Realistic Daily Targets

A very common mistake is:

  • using the same fixed percentage target on all markets, or
  • expecting huge additional moves on days that have already moved a lot.

With ADR you can ask:

“Given recent history,
how much does this market reasonably move in one day?”

Example:

  • Last 20-day ADR = 3%,
  • Today, early in the session, price has already moved 2.5%.

Expecting another +5% move on top of that
is statistically quite ambitious.

On the other hand:

  • if the market has only moved 0.5% so far,
  • and ADR is around 3%,

it suggests that a large portion of the typical daily range is still unused,
so bigger intraday swings are more plausible.

Of course, in reality:

  • some days will be strong trending days that overshoot ADR,
  • others will be quiet inside days that do much less.

ADR doesn't predict which;
it simply anchors your expectations in actual average behavior.

4. ADR and Daily Loss / Risk Limits

In risk-management,
we’ll discuss daily loss limits.

ADR is helpful for tying those limits to how active the market really is.

Example ideas:

  1. Early in the session – less than 30% of ADR used

    • Most of the daily range is still available.
    • If good setups appear,
      it may be reasonable to trade with normal risk.

  2. Approaching 80–100% of ADR

    • The market has already moved about a typical full day.
    • New trends starting from here are possible but over-extension and profit taking become more likely.
    • At this point, you may:
      • be more selective with new entries,
      • tighten your loss tolerance on new trades, and
      • if your daily loss limit is close,
        simply call it a day.

  3. Days that reach 150%+ of ADR

    • Often driven by news or major events.
    • These can be great opportunities,
      but also easy days to overtrade and blow up.
    • Trading them with reduced risk and an attitude of
      “it’s fine if I miss the move” is often healthier
      over the long run.

5. ADR in Intraday Trading: “How Much Is Already Done Today?”

For a day trader, ADR answers:

“How much of a typical daily move
has already happened today?”

This matters in several scenarios.

  1. Late in the session, with 100% of ADR already used,
    chasing new breakouts

    • Statistically, breakouts after a full ADR move
      have a higher chance of fakeouts or snap-backs.
    • They often overlap with failure patterns
      discussed in failure.

  2. Early in the day, with only 20–30% of ADR used,
    but setting an overly aggressive daily target

    • The market may still be in a low-information phase.
    • In that case, it is often safer to:
      • focus on smaller scalps, or
      • confirm the higher-timeframe structure
        from timeframes
        before scaling up risk.

  3. Approaching major daily support/resistance
    with 80%+ of ADR already spent

    • If price is near key levels
      from s-r
    • and most of ADR has already been used,
    • you should always consider how much room is realistically left
      for follow-through.

6. ADR, Volume, and Volatility Expansion

ADR is a historical average,
so today’s range will fluctuate around that number.

Combining ADR with:

helps you distinguish:

  • a normal day within average volatility, versus
  • a special day — trend day or event day
    that goes far beyond ADR.

Example:

  • Recent ADR = 2%,
  • today’s move is already 3%,
  • volume is significantly above average.

This is likely not a normal day,
and your risk management from
risk-management
should adapt accordingly.

7. Practical ADR Checklist

When planning day trades or short-term positions,
it helps to run through an ADR checklist:

  1. What is the recent ADR?

    • Is this market’s typical daily range
      large or small compared to others?

  2. What percentage of ADR has been used so far today?

    • Are we at 20–30% early on,
    • or already 80–100%+ late in the day?

  3. Are my targets/stops realistic relative to ADR?

    • Am I demanding 2–3× ADR in one day?
    • Is my stop distance, converted into a fraction of ADR,
      consistent with risk-management?

  4. How do my daily loss limits relate to ADR?

    • For example:
      “If most of ADR has already been used and
      I am close to my daily loss limit, I stop trading for the day.”

  5. Am I combining ADR with ATR and other tools?

    • ATR for per-bar stops and position sizing
      from atr,
    • ADR for daily targets and loss limits.

In short, ADR is:

“A ruler for how much this market tends to move per day.”

Using that ruler, you can:

  • align your targets and stops with each market’s personality, and
  • design daily risk boundaries that match the actual volatility
    instead of arbitrary numbers.