The ADR reversal strategy takes advantage of the average movement forex pairs and all tradeable instruments have on a daily basis. Research shows that any instrument you trade has an average daily range (ADR) and typically it will trade within that range around 58% of the time. When price extends beyond this range, it indicates either a breakout of a range may be in process or alternatively a liquidity run to gather stop and pending orders before reversing the opposite direction. In either case, there will at some point be either a pullback or reversal in price as the buying or selling pressure used to make these moves beyond normal trading ranges will need to be compensated.
Take a look at lots of examples of trades taken with the Market Reversal Alerts EA using the ADR strategy
If you want to find out more about the science behind ADR, check out this video:
When price exceeds the normal ADR, you will take a reversal trade in the opposite direction. e.g. if the ADR high is hit the trade will be a short and if the low is hit the trade will be a long. In many cases this initial trade will be successful, but if a true breakout occurs you will scale into the position waiting for the opposite pressure to be applied and the market correction to take place.
These are typically scalp type trades and usually traded using either the M5 or M15 time frames, as the moves in the opposite direction can happen very quickly. Typical targets should be somewhere between 1/2 ADR to 1 ADR, but the highest strike rate and lowest drawdown will be achieved if just targeting a small 1/4 ADR pullback move, and you will often be in and out of the trade the same day.
To trade this strategy manually, you can use the Market Reversal Alerts Indicator and the ADR reversal indicator.
To trade this strategy automatically, you can purchase the Market Reversal Alerts EA for MT4 on the marketplace.
