Trading the Average Daily Range

Average Daily Range for NT8

In this Indicator Spotlight, we’re looking at the Daily Range Projections. They display support / resistance levels and possible expansion targets, based on the volatility of the prior N days. These levels display as Average Daily Noise (ADN) and target projections, i.e. Average Daily Range (ADR) / Average Daily Extension (ADE). To learn more about the Daily Range Projections and the Average Daily Range, watch the video, or continue reading below:

The Noise Bands

The daily noise is defined as the smaller of (High – Open) and (Open – Low) averaged over N days. One may find the upper ADN band by adding the expected noise to the current open. Conversely, you may locate the lower ADN band by subtracting it. We need a significant move to break these levels. Therefore, if the market moves beyond the noise bands, it indicates participation from higher timeframe traders.

The ADR indicator is built on the same logic as the session indicators. You may therefore pull the OHLC data either from the daily data or intraday. Of course, daily data reflects the contractual settings of the instruments, accounting for extended sessions that occur with public holidays. Accordingly, the daily data is set as the default setting.

Average Daily Noise Levels
Average Daily Noise and Extension Levels

Using the Average Daily Range as a Profit Target

Targets and Average Daily Range Projections come into play once the price has broken outside the noise bands. There are two ways of calculating the targets:

  • The Daily Expansion Bands, namely the larger of (High – Open) and (Open – Low) averaged over N days, showing us the average expansion beyond the daily noise.
  • The Average Daily Range, namely adding it to the current low (high projection), or subtracting it from the current high (low projection). The ADR bands auto-adjust to the current day’s high and low until the expected daily range is reached. Once that occurs, the bands will freeze.
Average Daily Range for NT8
Average Daily Noise and Range Bands

Determining Directional vs. Reversal Setups

Markets are ranging some 80% of the time and you should know where price is trading vs. the ADN levels. You may therefore look for price rejection, i.e. spike/reversal patterns at the first test of the high/low bands. Conversely, if we break beyond the average daily noise, it points to institutional participation. In that scenario, one may be looking for momentum entries. The Ichimoku indicator, featured in a previous spotlight is one way to confirm breakout scenarios.

The Daily Range Projections, tracks the average daily noise and possible targets. There are two ways of determining targets: Daily Expansion Bands and Average Daily Range. Apart from the Daily Range Projections, our NinjaTrader Indicators Library also offers Weekly Range Projections and Monthly Range Projections, allowing you to review whether to look for reversal or momentum entries in multiple time frames. You may also consider reviewing our Indicator Spotlights on the ATR Trailing Stop and the Wilder Volatility Stop for managing open profits.

For more information on the Daily Range Projections indicator for NinjaTrader 8, follow the link below: