ADR Indicator: Average Daily Range on Gold

What it shows

One line in its own pane under the price, in price units. A rising line means candles have been getting taller; a falling line means they are shrinking. It has no direction.

How Pravex works it out

For every candle, take the range: high minus low.
Average the last Length ranges with a simple average (all candles weigh the same).
That is the whole line. It uses the candles on the chart, whatever their size, so the “daily” part comes from putting it on daily candles.

Settings

Setting	Default	What changing it does
Length	14	How many candles go into the average. A short length follows recent candles closely and jumps when one big candle arrives; a long one moves slowly and shows the normal range.

How traders read it

Day traders use the reading as a yardstick for the day. If gold’s ADR is, say (example numbers), 30 points and price has already moved 28 points since the daily open, much of the usual range is used, and a trade that needs another 20 points is asking for an unusually large day. The other way round, a move of 8 points has plenty of room left.

It also helps with size. A stop much smaller than the ADR sits inside the normal swing of the candles and gets hit by noise; one near half the ADR is far enough away that only a real move reaches it.

Comparing today’s range with the line shows how active the day is. A candle taller than the line is a bigger-than-usual day.

When it misleads

Pravex measures high minus low on whatever candles the chart has, so it is only a daily range on a daily chart; on hourly candles it is the average hourly range. It also ignores gaps: if gold opens a long way from the last close, only the range inside the candle counts, so the figure can read low after a gap. For that, the true range (ATR) adds the gap. And it looks back: it says what a typical candle has done, not what the next one will do. Gold’s daily candles here run on the 17:00 New York trading day with no weekend candle, so a Monday is not diluted by an empty weekend.

Questions and answers

What is a good ADR for gold?

There is no fixed value. Compare it with its own history: look at the last few months of the line on a daily chart and see whether today’s reading is high or low.

Is ADR the same as ATR?

Close but not the same. ADR averages high minus low only. ATR also counts the gap between one close and the next open, so it is larger after gaps.

What are the best ADR settings?

Pravex starts at Length 14, which on daily candles is about three weeks of trading. Use a longer length to see what is normal over a quarter, and a shorter one for recent behaviour.

Why is the ADR on my hourly chart so small?

The line averages the range of the candles on the chart. On hourly candles that is the average hourly range. Switch to daily candles for a daily figure.