Direct Answer
Average Daily Range (ADR) is a volatility measure that averages the high-minus-low range of each trading day over a lookback period, commonly 14 or 20 days. Expressed as a percentage of price (ADR%), it lets traders compare typical daily movement across differently priced assets rather than relying on a raw dollar figure.
Key Takeaways
- ADR = average of (High − Low) over the last n days, most commonly a 14- or 20-day lookback.
- ADR% = ADR ÷ Closing Price × 100 converts ADR into a percentage, making it comparable across assets priced very differently.
- ADR describes typical historical daily movement. It is not a target, a limit, or a prediction of what tomorrow's range will be.
- A rising ADR means daily ranges have been widening; a falling ADR means they have been narrowing.
- ADR uses only each day's high and low, so it does not capture overnight gaps the way Average True Range (ATR) does.
What Is Average Daily Range?
Average Daily Range (ADR) is a volatility measure that averages the high-minus-low range of each trading day over a lookback period, commonly 14 or 20 days. Each day contributes one number, that day's high price minus its low price, and ADR is simply the mean of those numbers over the chosen window.
Because it's built from the high and low of each bar, ADR is expressed in the same price units as the underlying security: a $2.10 ADR means the stock has typically traveled about $2.10 from its daily low to its daily high over the lookback period. ADR says nothing about direction, it doesn't indicate whether that movement tends to happen to the upside or the downside, only how large the round-trip tends to be.
The Formula
ADR = average of (Highi − Lowi) over the last n days.
To calculate it: take each day's high minus low over the lookback period, then average those daily ranges. The lookback period, n, is commonly 14 or 20 days, though it can be adjusted for a given asset or timeframe.
ADR is also commonly expressed as a percentage of price:
ADR% = ADR ÷ Closing Price × 100.
Because raw ADR is a dollar (or point) figure, a $2 ADR means something very different on a $20 stock than on a $500 stock. ADR% normalizes for price level, which is what makes it useful for comparing volatility across differently priced assets, similar in purpose to how ATR% normalizes Average True Range.
Worked Example
Suppose a stock's daily high-minus-low ranges over the last 5 trading days were $2.10, $1.85, $2.40, $1.95, and $2.20.
ADR = (2.10 + 1.85 + 2.40 + 1.95 + 2.20) ÷ 5 = 10.50 ÷ 5 = $2.10
If the stock trades around $105, then:
ADR% = 2.10 ÷ 105 × 100 = 2.0%
That means over this window, the stock has typically moved about $2.10, or about 2.0% of its price, from its daily low to its daily high. A real ADR calculation would generally use a 14- or 20-day lookback rather than 5 days; this shorter window is used here purely to keep the arithmetic easy to follow.
How Traders Use ADR
Setting expectations for the day's move
Some traders compare how far price has already moved intraday against the security's ADR to gauge how much of the "typical" daily range may already be used up. This is a rough heuristic, not a hard ceiling, a security can and does exceed its ADR on any given day, particularly around news or earnings.
Sizing stops and targets
Because ADR is expressed in price units, some traders scale stop-loss distances or profit targets to a multiple of ADR so that risk is proportional to how much the security typically moves, rather than using a fixed dollar amount across every position.
Comparing volatility across assets
ADR% lets a trader compare typical daily movement between a low-priced and a high-priced security on equal footing, which raw ADR cannot do on its own.
Screening for tradability
A very low ADR% can indicate a security that rarely moves enough, after costs, to be worth a given strategy's attention; a very high ADR% can indicate a security whose typical daily swings may be larger than a given risk tolerance is built for.
Common ADR Lookback Periods
| Lookback period | Responsiveness | Common use |
|---|---|---|
| 5-10 days | Faster, reacts quickly to recent volatility shifts | Short-term/swing trading |
| 14 days | Balanced | General-purpose (commonly cited default) |
| 20 days | Slower, smoother | General-purpose (commonly cited default, roughly one trading month) |
| 50+ days | Very smooth | Longer-term volatility context |
14 and 20 days are the most commonly cited defaults, but this is a dated heuristic rather than a fixed rule, verify the exact default and available lookback options against your own charting platform, since conventions vary.
Limitations of ADR
- Backward-looking, ADR describes what daily ranges have looked like over the lookback period, not what tomorrow's range will be. A quiet stock can gap into a much wider range with no advance warning from ADR itself.
- No direction, ADR says nothing about whether the day's range is likely to be to the upside, the downside, or both. It must be read alongside price structure and trend.
- Ignores gaps, because ADR uses only each day's high and low, it can understate a security's real day-to-day volatility around gaps, unlike Average True Range, which incorporates the prior close.
- Sensitive to outliers, a single unusually wide day (earnings, news) can pull a short-lookback ADR higher for as long as that day remains inside the window.
- Not directly comparable across assets without ADR%, comparing raw ADR between a $10 stock and a $400 stock is comparing largely unrelated numbers.
Common Mistakes
- Treating ADR as a hard limit, a security exceeding its ADR on a given day is normal, not an anomaly; ADR is an average, so roughly half of days should be expected to exceed it in one direction or another.
- Comparing raw ADR across differently priced securities, use ADR% instead, since raw ADR isn't scaled for price level.
- Using a stale lookback window, ADR calculated weeks ago on an outdated window no longer reflects current conditions, especially after a volatility regime shift.
- Ignoring gaps entirely, for securities that gap frequently, pairing ADR with Average True Range gives a fuller volatility picture than ADR alone.
- Using ADR as the sole basis for a trade decision, it describes typical range, not price direction, support/resistance, or fundamentals.
Using a Typical Day to Size Targets and Stops
Average daily range answers a narrow and practical question: how far does this instrument usually travel in a session. That figure is useful for setting expectations, because a target requiring several times the typical range is asking for an unusual day rather than an ordinary one.
The direct application is in stops and targets. A stop placed inside a fraction of the average range will be reached by ordinary movement regardless of whether the idea was sound, and a target set well beyond it needs a day that does not often occur. Both are correctable once the number is known.
The mistake is treating the average as a boundary. Ranges are distributed with a long tail, and instruments regularly produce days several times their average, particularly around scheduled events. An approach that assumes price will stop near the average range is assuming the tail away.
The average also lags a change in conditions. A stretch of quiet trading pulls the figure down and a volatile stretch pushes it up, so the number describes the recent past rather than today. Around an announcement, the historical average is the least reliable guide to what the session will do.
Average Daily Range FAQs
What is Average Daily Range (ADR)?
Average Daily Range (ADR) is a volatility measure that averages the high-minus-low range of each trading day over a lookback period, commonly 14 or 20 days. It describes how much a security typically moves in a single day, in price units.
How is ADR calculated?
ADR is the average of (High minus Low) for each day over the last n days: ADR = average of (High_i − Low_i) over the last n days. Most platforms default to a 14- or 20-day lookback, but the period can be changed.
What is ADR%?
ADR% expresses ADR as a percentage of closing price: ADR% = ADR ÷ Closing Price × 100. Because it's a percentage rather than a raw dollar figure, ADR% can be compared across differently priced assets, while raw ADR generally cannot.
What ADR period is most common?
14 and 20 days are the most commonly cited lookback periods, though this is a dated heuristic rather than a fixed rule, verify the default and available settings against your own charting platform, since some use different conventions.
Is a higher ADR better?
Not inherently. A higher ADR means a security typically moves more per day in price terms, which can mean more profit potential but also more risk and wider stops. Whether that suits a given strategy depends on the trader's timeframe, risk tolerance, and position sizing approach.
How is ADR different from ATR?
ADR uses only each day's high minus low. Average True Range (ATR) uses "true range," which also accounts for gaps between one day's close and the next day's high or low. On a day with no gap the two calculations are close; on a day with a large gap, ATR captures more of the actual price movement than ADR does.
How does the measure behave on a day with a large opening gap?
Because it uses each day's high and low without reference to the previous close, a gap contributes nothing unless price travels after the open. A stock that gaps substantially and then holds a narrow range records a small daily range despite a large move. This is the principal difference in behaviour from measures that include the previous close in their range definition.
What lookback period is appropriate for the average?
Shorter periods reflect current conditions and change quickly, longer ones give a stabler figure that may not describe the present. Periods of roughly two to four weeks of trading days are common when the measure is used for intraday planning. The right choice depends on whether you want the figure to react to a volatility change or to remain a steady reference.
How is the measure used to set intraday expectations?
A common application takes the day's opening range or current position and compares the distance already travelled against the typical daily range, on the reasoning that a stock which has already covered its usual distance has less room left. This is a rough guide rather than a limit, since ranges expand on the days that matter most. It is more defensible as a sizing input than as a target.