Average Daily Range (ADR)

Average daily range is the typical distance from a session high to a session low over the last N days. Intraday traders use it as a budget. If the instrument usually travels 150 points and it has already travelled 140 from the session low, the remaining room to the average is small. That is not a reversal signal. It is a warning that a target beyond the average asks the day to be unusual, which some days are and most days are not.

Compute the session range so far and compare it with ADR. A market that has already used its average range by late morning is extended for a typical day. Fading it can work in a range regime and can be catastrophic on a trend day, which is exactly the day that exceeds ADR. So the reading is a size and target adjustment, not a side. Weekly and monthly versions exist for swing traders and answer the same question on those horizons.

Set intraday targets inside the unused ADR unless the day is already a trend day, with opens near one extreme and no pullback. Place stops with ADR in mind: a stop of a small fraction of ADR is inside the noise the average says is normal. Use a rising ADR, like a rising ATR, to cut size. On gap days, remember a pure high-low ADR ignores the gap, so the tradable intraday range may be smaller than the true move from yesterday's close.

Fading every market that has "used up" its ADR. Trend days exist, and they are where the day's money is. Also using a 5-day ADR that is dominated by one event and treating it as the new normal for the next session.

ADR is an average, so half the days exceed it. A target at ADR is not a magnet. It is a typical value, and typical values are routinely exceeded. It also says nothing about direction, volume, or where the range sits relative to yesterday's high and low.