I’ve put together my views on currency average daily range;
Average daily range basically measures how much range has been between a pair in a day and that it gives you the average of those moves and then gives you a figure of how many pips the price is expected to move each day based on historic movements.
Allot of traders try to use this for things like profit targets and sometimes entry levels, if for example the price has gone against its daily range you can look to buy it back or sell it as it’s not expected to go any further.
These kind of methods of applying daily range in my opinion are flawed and generally won’t lead to consistent profits or results on your trading, the way I use daily range is to give me a guide as to how many pips I should be looking to take on that trade.
So if the pair I am trading, which of course before I have got into the market I would of done all my analysis and know I want to trade it, if that pair has been trading a maximum of 30 pip daily range I know that 30 pips is the maximum I want to take. 10, 20 or 30 pips anywhere in that range is where I want to be putting my profit target using other things like support and resistance levels to give me a rough guide as to where I want to close the trade.
What I won’t do, given the average daily range is try to hold that pair for 300 pips as I know it is very unlikely that that shift in price is going to occur in any short period of time, if I’m prepared to hold it over a longer period of time that’s fine but if I’m day trading the average daily range becomes more pertinent.
So in summary my advice is not to use average daily range for trade suggestions and entry points as it simply gives an indication of their typical range of pips and is not suitable entry points.
