Education · Stage 5 · 07
Daily range: what to expect
Everyone quotes an average daily range and almost everyone uses it wrongly, in one of two opposite ways. An average describes the days that have already happened. It is not an allowance today has to spend, and it is not a ceiling today has to respect.
Mak · 3 min read · Stage 5, article 7 of 8
What the number is
The daily range is the distance between a session's high and its low. Average it over the last few weeks and you have the figure people quote — often as an ATR, which is the same idea with the overnight jump folded in.
Measure it on your own instrument rather than importing a figure: take the last twenty sessions, note the high minus the low for each, and look at the list. The exercise takes ten minutes and it teaches more than the average does.
Because the average day does not exist
The two mistakes
- «The range is used up, so it has to stop»
- The average already contains the days that travelled two and three times it. A day that has covered its average distance by lunchtime is not finished — it may be one of the tall bars.
- «There is range left, so it has to move»
- Nothing owes you movement. Quiet days exist, they are more common than the average suggests, and waiting for the market to «complete» a figure is waiting for a promise nobody made.
Both come from the same error: treating a description of the past as a quota for the present.
What it is genuinely good for
Sizing. This is the honest use, and it is the one that connects to the arithmetic from the first stage.
If a normal day travels a certain distance, a stop of a tenth of that is inside the noise, and a target of three times it is asking for a rare day.
That single comparison rules out a great deal of nonsense before you place an order. It tells you whether the stop your approach needs is realistic for this instrument, and whether the target you have in mind requires an ordinary day or an exceptional one. Both are checkable in advance, and both stop being guesses once you have measured the last twenty sessions.
Two things that shift the number
- Where in the day you are. A large share of the range is built in the first and last hours. A quiet midday is not the day being quiet; it is the window being quiet, which is the first article of this stage.
- The period you are in. Volatility clusters: calm weeks follow calm weeks and violent ones follow violent ones. An average from three months ago can describe a different market from the one in front of you, which is why the measurement is worth repeating rather than memorising.
Which is the whole article in one line: measure it recently, use it for sizing, and never let it tell you what today is going to do.