[Stop!Loss] ADR Signal

[Stop!Loss] ADR Signal - a technical indicator located in a separate window, which displays by default the 80%-level, as well as the 100%-level of the average daily range (ADR) for the last 10 days and compares it with the current intraday range. The indicator helps not only with the use of a mathematical-statistical method to identify a potential reversal at the moment during intraday trading, but can also serves as an effective assistant in risk management.

👉 Basic mechanics of the indicator

Firstly, this indicator tracks the performance of the standard ATR indicator on the daily chart, in other words, ADR (Average Daily Range).

Important❗️The ATR (Average True Range) indicator was created by J. Welles Wilder Jr. He first introduced ATR in his book "New Concepts in Technical Trading Systems", published in 1978. Wilder developed this indicator to measure market volatility to help traders estimate the range of price movements. This indicator is built into TradingView, more details can be found by link: tradingview.com/support/solutions/43000501823-average-true-range-atr/

Like ATR, ADR calculates the average true range for a specified period. In this case, the distance in points from the maximum of each day to its minimum is calculated, after which the arithmetic mean is calculated - this is ADR.

👉 Visualization

[Stop!Loss] ADR Signal is located in a separate window on the chart and has 3 levels:
1) "ADR level" (green line) - the same parameter, the calculations of which are briefly described above. There is 100%-level of ATR on the daily chart (ADR).
2) "Current level" (red line) - this is the current price passage within the day, calculated in points. At the start of a new day, this parameter is reset. Therefore, in the indicator window, this line has sharp drops at the start of a new trading day: "A new trading day - the instrument's power reserve is renewed again".
3) "Signal level" (blue line) - this is an individually customized value that demonstrates a certain part of the ADR parameter.

👉 Inputs

1) [ADR Length] - is responsible for the ATR indicator period, the value of which will always be calculated on the daily chart. The default value is "10", that is, ATR is calculated for the last 10 days (not including the current one).
2) [Signal level, in %] - signal level (in %). The default value is "0.8", that is, 80%-level of the ADR parameter (set earlier) is calculated.



👉 Style

1) [Signal level] - by default, this level is colored "blue".
2) [Current level] - by default, this level is colored "red".
3) [ADR level] - by default, this level is colored "green".



👉 How to use this indicator

Important❗️ The two methods of the use of the [Stop!Loss] ADR Signal indicator described below will be most effective when trading intraday (which is highlighted quite well below), so it is more logical to use the indicator information on time periods H1 and below.

1) Identifying potential reversals during intraday trading:

The [Stop!Loss] ADR Signal indicator can be used as a potential individual reversal strategy.

Important❗️It should be noted that using it in it without additional confirming analysis tools will be a rather aggressive trading approach. Therefore, it is best to support the entry point in particular with other methods.

In this case, the crossing of the red line (the number of points passed within the current day, that is, from the minimum of the current day to its maximum) and the blue line (color of the Signal level based on the default settings), indicates that the trading instrument has passed 80% (based on the default settings for the "Signal level") of its average distance from the maximum to the minimum over the past 10 days (based on the default settings for the "ADR Length"). Such a situation in the context of the mathematical-statistical approach indicates a probable reversal, since the "power reserve" of this instrument is mostly exhausted, so one can expect with a higher probability, at least, a price stop and possibly a reversal. In case of crossing of the red line and the green one (ADR level), it says again that based on the mathematical-statistical approach, this trading instrument has completely exhausted its intraday "power reserve". In this situation, a stop or reversal of the price will be even more likely.



Of course, using the "Signal level" parameter, one can filter out even more reliable situations for potential price reversals within a day, namely, by specifying, for example, 1.5 in the field of this parameter. Under such conditions, in the case of crossing the red and blue lines (based on the default style settings), to say that the trading instrument has passed 150% of its average distance over the last 10 days (based on the default style settings "ADR length"). In this case, the probability of a stop or reversal of the price increases even more.

2) Use in risk management:

In terms of risk management, this indicator is more applicable to open trades. For example, if one had an open Buy-position (especially if it is an intraday trade) and the price has raised significantly during the day, then the crossing of the red line with the blue line, and especially the red line with the green line, may indicate that the price will most likely stop growing, since the "power reserve" is almost or completely exhausted for this instrument within the current day. In this case, one can, at a minimum, move the trade to breakeven or even partially fix the profit.




We will continue to discuss the methods of using this indicator and strategies based on it here. And we are always waiting for your reactions and feedback on this topic 💬.
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