How it works
Average Day Range is the simplest volatility statistic that intraday traders actually use, and its purpose is budgeting rather than analysis. If a stock has averaged a four percent high-to-low range over the last twenty sessions and it has already covered three and a half percent by mid-morning, the arithmetic of the remaining session has changed: a fresh breakout entry now has considerably less room to work with than the same entry taken at the open, and a target set two percent away is asking for an unusually large day.
It differs from average true range in one deliberate respect: it ignores gaps. ATR includes the distance from the previous close specifically so that overnight moves are counted, which is right for sizing a position that is held overnight. ADR measures only what happened between the open and the close of the session, which is right for a trader who is flat overnight and only cares about the ground available while they are in the market. On a gap-prone instrument the two numbers can differ substantially, and using the wrong one systematically misprices the day.
The percentage form is the one most commonly quoted, because a raw range in dollars is not comparable between instruments. Expressing the range as a percentage of price produces a figure that can be screened across a universe, which is how many day traders build their watchlists: filter for a minimum ADR percentage and a minimum average volume, and what remains is the set of instruments capable of producing the daily movement the strategy needs. An instrument with a one percent ADR simply cannot support a strategy that needs two percent per trade, no matter how good the entries are.
The natural companion reading is range consumption: the current session's high-to-low range divided by ADR. Below about half, there is room and continuation entries are reasonable. Near or above one, the day has already delivered a full range and both the odds of further extension and the risk-reward of a late entry deteriorate. That single ratio does more practical work than most oscillators, and it requires nothing beyond arithmetic that can be done in the head.
Calculation
The arithmetic in words, in the order it happens.
For each of the last N daily bars compute the range as the high minus the low, then take the simple average of those N values, with N conventionally 5, 10 or 20 sessions. The percentage form, which is the one usually quoted, computes the ratio of the high to the low for each session, averages those ratios over N sessions, subtracts 1 and multiplies by 100, giving the average session range as a percentage of price. Unlike average true range, no comparison with the previous close is made anywhere, so overnight gaps are excluded entirely. Range consumption is then the current session range divided by ADR, expressed as a percentage.
Source
An AlgoBeamScript implementation of the formula above, written by us from the arithmetic so the code and the calculation agree line for line.
Runs unchanged on the platform and in the AlgoBeamTS runtime. The language reference is in the documentation.
Inputs
Defaults are the values most charting packages ship with. They are conventions, not optimal settings — the right length depends on your instrument and your holding period.
| Input | Default | What it changes |
|---|---|---|
| Length | 20 | Number of sessions averaged. Five sessions reflects the current week and reacts fast enough to catch an earnings-driven volatility shift; twenty gives a stable baseline that is not thrown by one wild day. |
| Output form | Percentage | Whether the range is reported in price units or as a percentage of price. Percentage is required for any comparison across instruments; price units are what a stop or a target is actually placed in. |
| Session definition | Regular hours | Whether extended-hours trading is included in the daily high and low. Including it produces materially larger figures on equities and changes what the number means for a regular-hours strategy. |
How to read it
What practitioners take from the plot. Read these as descriptions of market state, not as entry signals.
- Session range at 30 percent of ADR by midday
- A quiet day with room left. Breakout entries still have space to reach a normal target.
- Session range already exceeding ADR
- The day has delivered a full range or more. Late entries in the direction of the move are chasing, and reversion attempts become more attractive.
- ADR rising over successive weeks
- A volatility regime shift. Targets, stops and position sizes all need rescaling, and strategies previously filtered out may now qualify.
- ADR percentage below the strategy minimum
- The instrument cannot deliver the movement the plan requires. This is a screening decision, made before any chart analysis begins.
Limitations
Where this indicator misleads. None of these are fixed by a better parameter.
- It ignores gaps completely, so on a gap-prone instrument it understates the actual risk of holding a position overnight. Use average true range for anything carried between sessions.
- An average says nothing about distribution. A twenty-day ADR built from nineteen quiet sessions and one enormous one describes neither, and the median session range is often the more honest number.
- It is entirely backward looking and knows nothing about the calendar, so it will happily report a placid figure on the morning of an earnings release or a central bank decision.
- Range consumption is a weak signal in a trending market, where days routinely run to 150 or 200 percent of ADR and fading extension on that basis alone is a reliable way to lose money.
Educational reference. This page explains how an indicator is built and how it is commonly read. It is not investment advice, not a recommendation and not a signal service. No indicator is profitable on its own — each is a way of describing a market, and any rule built on one has to be tested with realistic costs before it is traded.