What is Average Daily Range (ADR)? Definition, Formula, and Example
Average daily range (ADR) is the mean distance between a security's daily high and low over a lookback period, used to set realistic profit targets, stop distances, and to gauge how much of a day's movement is already exhausted.
Average Daily Range Definition
Average daily range (ADR) is the average of the daily high-minus-low range over a defined lookback period, most commonly 10, 14, or 20 sessions. It measures how far a security actually travels in a normal day, in points or as a percentage of price. Unlike average true range, ADR ignores overnight gaps — it measures intraday travel only, which makes it the cleaner yardstick for day traders deciding whether a stock has room left to move.
How Average Daily Range Is Calculated
ADR = (Σ (Highᵢ − Lowᵢ)) / n
where n is the number of sessions in the lookback. As a percentage:
ADR% = ADR / Current Price × 100
The key operational metric is percent of ADR consumed: at any point intraday, divide the current day's high-low range by ADR. If a stock with a 4-point ADR has already printed a 3.6-point range by 11 a.m., 90% of its statistically normal movement is used up, and initiating new directional positions in the day's trend direction carries poor expected value.
ATR vs. ADR: ATR substitutes true range (the greatest of high−low, |high−prior close|, |low−prior close|) for the raw daily range, so ATR ≥ ADR always. For gap-prone stocks the difference is material.
Worked Example
Consider AMD over a 10-day lookback with daily ranges (high − low):
$4.10, $3.85, $5.20, $4.45, $3.90, $4.30, $5.05, $3.75, $4.20, $4.60
Sum = $43.40. ADR = $43.40 / 10 = $4.34. With AMD at $158, ADR% = 4.34 / 158 = 2.75%.
Application: AMD opens at $158 and rallies to $161.50 by midday, with a session low of $157.40 — a range of $4.10, or 94% of ADR consumed. A breakout buyer entering at $161.50 is paying for a move that has statistically already happened. Conversely, if AMD sits at $158.60 at noon with a range of only $1.90 (44% of ADR), a catalyst-driven afternoon expansion has room to run, and a stop placed $4.34 away from entry sits outside one normal day's noise.
When Traders Use Average Daily Range
- Profit targets: Day traders set targets at 1× ADR from the day's open or from a breakout level; swing traders use ADR to sanity-check whether a multi-day target requires unrealistic daily travel.
- Stop placement: Stops tighter than 0.5× ADR get hit by ordinary noise. Position sizing flows directly from this: with a $4.34 ADR stop and a $500 risk budget, the position is 115 shares.
- Stock selection: Scalpers screen for ADR% above 2–3% because range is the raw material of intraday profit; a $30 stock with a $0.40 ADR cannot pay a day trader.
- Exhaustion signals: A stock that reaches 100% of ADR early and stalls at the extreme is a fade candidate back toward VWAP.
Limitations and Common Misconceptions
ADR is a backward-looking average and breaks down precisely when it matters most: earnings, macro releases, and halts produce ranges of 2–4× ADR by design. It is also distribution-blind — a stock with alternating quiet and violent days can show the same ADR as a consistent one, so the hit rate of "1× ADR" varies wildly. ADR says nothing about direction, only distance. Confusing ADR with ATR leads to stops that ignore gap risk; a stock that routinely gaps 1.5% needs ATR-based sizing. Finally, ADR drifts with volatility regime — an ADR computed during a quiet month understates range once realized volatility expands, so the lookback must be refreshed continuously.