Key takeaways
- ADR is the average percent a stock moves between its daily high and low.
- It is calculated as the 20-day average of (high minus low) divided by low.
- Momentum traders generally want an ADR of 3 to 5 percent or higher.
- Low ADR means slow, range-bound price action that rarely rewards breakouts.
ADR, or Average Daily Range, measures how much a stock typically moves in a single day, expressed as a percent. It is calculated as the 20-day average of (high minus low) divided by low. Momentum traders generally want an ADR above 3 to 5 percent, because a stock needs enough daily range to produce a worthwhile move once it breaks out.
How ADR is calculated
For each of the last 20 trading days, take the day's high minus its low, divide by the low, and turn it into a percent. Average those 20 values and you have the ADR. The result is a single number that says, on a typical day, this stock travels about this far from low to high.
ADR percent = the 20-day average of ((high - low) / low) x 100.
What is a good ADR value?
There is no single right number, but momentum traders usually look for an ADR of at least 3 to 5 percent. Below roughly 3 percent, the stock simply does not move enough for a breakout to clear the risk and the spread. Many traders prefer names in the 5 to 10 percent range, where a clean breakout can deliver a meaningful gain in a few days.
- Under 3%
Slow and range-bound. Usually skipped by momentum traders.
- 3 to 5%
The common minimum for a breakout to be worth trading.
- 5 to 10%+
High range. Bigger moves, but also bigger risk per share.
Why range matters more than price
Two stocks can have identical chart patterns and completely different outcomes simply because one moves and the other does not. ADR filters for the ones that move. It is also a built-in risk gauge: a high-ADR stock needs a wider stop and smaller position size, while a low-ADR stock needs the opposite. Knowing the range before you enter keeps position sizing honest.
ADR and position sizing
Because ADR describes typical daily movement, it helps set a stop that is wide enough to survive normal noise but tight enough to keep risk small. Place a stop inside the daily range and it will get hit on a quiet day. Size the position against a stop that respects the ADR and you avoid being shaken out of a good trade by ordinary volatility.
Frequently asked questions
What is a good ADR value for a stock?
- Momentum traders generally want an ADR of at least 3 to 5 percent, and many prefer 5 to 10 percent. Below roughly 3 percent a stock moves too slowly for a breakout to clear the risk, while higher ADR offers bigger moves at the cost of bigger risk per share.
How is ADR calculated?
- ADR is the 20-day average of (high minus low) divided by low, expressed as a percent. For each day you measure the range as a percentage of the low, then average those values over the last 20 trading days.
Is ADR the same as ATR?
- They are related but not identical. ATR (Average True Range) is measured in dollars and accounts for gaps between sessions, while ADR is usually expressed as a percent of price and ignores overnight gaps. ADR makes it easier to compare range across stocks at different price levels.
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