Average daily range (ADR): sizing stops and targets in forex

Every pair has a personality. EUR/USD moves at a steady pace, GBP/JPY swings wide, and some crosses barely move outside the London session. Average daily range puts a number on that personality, and that number makes stops, targets and position sizes easier to set.

What ADR is

Average daily range is the average distance between each day's high and low over a set number of days, usually 14 or 20. If EUR/USD covered 72, 65, 80 and 71 pips over four days, its four-day ADR is 72 pips.

It is often confused with ATR (average true range). ATR also counts gaps: if a pair opens away from the previous close, ATR includes that jump, ADR does not. Gaps are rare in forex outside weekends, so the two numbers are usually close for currency pairs.

Using ADR for stops

A stop that is small compared with the pair's normal daily movement gets hit by ordinary noise. A stop that is larger than a full day's range leaves the trade open to a move that has nothing to do with your idea. Many traders keep stops between roughly a quarter and a half of ADR on intraday trades, then adjust for the setup.

Using ADR for targets

ADR is also a reality check for targets. If a pair has already moved 90% of its ADR today, a target that needs another full day's worth of range is unlikely to be reached before the session ends. Ranges can expand on news days, but expansion is the exception.

From ADR to position size

Once the stop distance is set, position size follows from how much of the account you are willing to lose on the trade:

position size (lots) = risk amount ÷ (stop in pips × pip value per lot)

Example: a $10,000 account risking 1% has $100 at risk. With a 30 pip stop on EUR/USD, where one standard lot is worth about $10 per pip, the size is 100 ÷ (30 × 10) = 0.33 lots. A wider stop means a smaller position, so the money at risk stays the same.

Keep it current

ADR changes with the market. Ranges shrink in quiet summer weeks and expand around central bank meetings and big data releases. Recalculate it regularly instead of relying on a number from months ago.

ADR outside forex

For stocks, ADR is usually given as a percentage of price, since a $5 move means something very different on a $20 stock than on a $500 one. Signum Lab's high ADR screen ranks US stocks by that percentage, which is a quick way to find names that move enough to trade.

For the trade itself, combine a sensible stop with a clear entry, like the EMA reclaims and breakouts the SMA Tracker looks for.