Free trading newsletter
The average daily range -not to be confused with the average true range- indicates the daily trading range of a financial instrument. Traders tend to look at both today’s trading range and the average trading range over 7 and/or 14 days.
Traders are interested in movement i.e. volatility. Instruments showing an increase in their trading range are of interest. It is also interesting to compare the current day's range with the average daily range. If, for example, today’s range is still far from the average daily range, it may be likely that an instrument makes a move later in the day.
This example shows the day’s trading range (grey line) on the EUR-USD. The trading range at this point in time is about 50 pips. The 14-day average trading range (red line, 99 pips) and the 7-day average trading range (blue line, 107 pips) are higher. Hence a further move of, say, 20 to 30 pips, later in the day, may not be impossible.