Average True Range (ATR), Average Day Range (ADR), and Intraday Range (IR) are essential volatility indicators used to measure asset price movements. Each serves distinct trading styles:
- ATR excels for swing trading with its gap-inclusive calculation
- ADR/IR provide superior intraday insights for day traders
- All three quantify movement magnitude without predicting direction
👉 Master these volatility indicators to enhance your trading strategy across timeframes.
Understanding Average True Range (ATR)
Developed by J. Welles Wilder, ATR measures dollar-denominated price movement by analyzing:
True Range Components (maximum of):
- Current high vs low
- Current high vs prior close
- Current low vs prior close
Calculation Method:
- Initial ATR = 14-period TR average
- Subsequent ATR = [(Prior ATR × 13) + Current TR]/14
Key Attributes:
- Default 14-period setting (adjustable)
- Includes overnight gaps
- Best for multi-day position analysis
Decoding Average Day Range (ADR)
ADR focuses strictly on daily price movement:
Formula:
ADR = (Sum of last 14 Daily Ranges)/14
Where Daily Range = Daily High - Daily Low
Critical Distinctions from ATR:
- Excludes gap movements
- Pure intraday volatility measure
- Dollar-based by default (% variants exist)
Intraday Range (IR) Explained
The IR indicator offers flexible volatility analysis:
Core Calculations:
- IR% = [(High - Low) × 100]/Open
- IR$ = High - Low (dollar terms)
- AIR% = Moving average of IR% values
Operational Advantages:
- Per-bar volatility visibility
- Percentage normalization across assets
- Customizable averaging periods
👉 Optimize your trading with IR metrics
Comparative Analysis: ATR vs ADR vs IR
| Feature | ATR | ADR | IR |
|---|---|---|---|
| Measurement Unit | Dollars | Dollars/% | Dollars/% |
| Includes Gaps | Yes | No | No |
| Default Averaging | Yes | Yes | Optional |
| Per-Bar Data | No | No | Yes |
Strategic Applications:
- ATR: Ideal for setting swing trade stops (1.5-3× multiples)
- ADR: Best for daily volatility benchmarks
- IR/AIR: Essential for intraday opportunity scanning
Practical Trading Applications
Swing Trading with ATR
- Position sizing based on dollar volatility
Trailing stop methodology:
- Long positions: Current price - (ATR × multiplier)
- Short positions: Current price + (ATR × multiplier)
- Recommended multipliers: 1.5-3× depending on risk tolerance
Day Trading with IR/AIR
- Scan criteria: AIR% ≥ 5% for high-volatility candidates
- Intraday alerts: Monitor real-time IR% spikes
Strategy alignment:
- High volatility: AIR% ≥ 5% (momentum strategies)
- Low volatility: AIR% ≤ 2% (range-bound approaches)
FAQ: Volatility Indicators Explained
Q: Which indicator works best for crypto trading?
A: IR% proves most effective due to crypto's 24/7 markets where traditional "daily" metrics lose relevance.
Q: How often should I recalculate these metrics?
A: Reassess weekly for swing trading, daily for active day trading strategies.
Q: Can these indicators predict price direction?
A: No - they solely measure movement magnitude. Combine with trend analysis for directional bias.
Q: Why use percentages instead of dollar values?
A: Percentage normalization enables cross-asset comparison regardless of price levels.
Q: What's the optimal period setting for averages?
A: While 14-period is standard, test 7-21 periods to match your trading frequency.
Q: How do I handle news-driven volatility spikes?
A: Consider implementing separate ATR calculations for normal vs event periods.
By understanding these volatility indicators' nuances, traders can better navigate different market conditions and timeframes. Remember - successful trading combines quality analytics with disciplined risk management.
👉 Elevate your trading skills today with professional volatility analysis techniques.