How to Calculate the Daily Range for Forex
Hello, traders. Welcome to the Scalping Course, and the second module, “Getting Started: The Backbone of a Scalper.” In this lesson, we’re going to teach you all about the daily range, how to calculate the daily range, and why it is so important for you to understand it, and what information this calculation is going to bring you, and how much more profitable you’re going to be if you use it when you scalp.
So let’s start by defining what a daily range is. The daily range is defined as the intraday high minus the intraday low. This formula gives us the amount of ticks or pips an instrument has moved during the session. So what you’re going to do is you’re going to look at your chart and you’re going to spot the intraday high or the session high and the session low. And you’re going to subtract them. And this calculation is going to give you the amount of pips or ticks that an instrument has moved throughout the session. And this information or the is also going to tell us which instruments are moving the most and where we should be looking for scalps. Remember that when we’re scalping, we are looking for volatility.
And this simple calculation is going to tell us which instruments are moving the most. And by looking and by knowing which instruments are moving the most throughout the session, we are going to know which ones are the more volatile. By pinpointing them, we are going to add a little extra into our scalping making our system even more profitable.
So why is the daily range so important? Well, like I told you, it’s important to know the range of the instrument you are analyzing has moved, because it will give you an idea of how much more it can move when you are about to take a scalp. Even though we don’t focus on medium-term trades, the daily range can tell us if it’s profitable to let half of our position run. And here’s where scalping becomes magical or becomes even more profitable. In this course, we’re going to teach you how to let half of your trade run. But of course, we are also going to teach you how to do it, when to do it, and for how long you should do it. But for the purpose of this lesson, we are going to teach you right now how to calculate the daily range and how to spot the better instruments to trade or the better instruments to scalp on.
Now let’s go through a couple of charts. I’m going to show you what a nice, volatile instrument looks like and what a very small daily range looks like.
Okay, we’re back. And as you can see right here, we have the ES 5-minute chart. And remember that the ES is the E-mini S&P 500 Futures Contract. This is what a tiny daily range looks like, and I’m going to show you the importance of the daily range by just calculating it here. Now we’re going to grab a ruler tool. This is the low of the day and this is the high of the day. As you can see here, we have $13.75 move to the up side. And then price broke with this massive chop in this and moved back to the daily lows.
When price breaks with this, it can be considered a consolidation period. But when it breaks to the downside, it’s the lows. And here’s where the daily range comes into play. We have already established that price moved from the low of the day to the high of the day for about $14 or $13.75. Where we break to the down side, after we make this new high and we hit this low, price had moved $12 meaning that it had moved more than 90% of the daily range. And when price moves almost 90% of a daily range, it means that price has probably exhausted and we could look for a bounce. But we are looking for trading opportunities around this place right here where price had only moved $6 meaning that we still had a lot of range in us to move lower. As you can see here, when price moves the entire daily range to the downside, price starts to trade very choppily. It goes on to trade in a very tiny range all throughout the day.
Now let’s go to another chart and let’s see what a good daily range looks like. Now here’s the YM’s 5-minute chart. And as you already know, the YM is the E-mini Dow Futures Contract. Now let’s go and let’s grab our ruler tool, and let’s calculate from the high of the day to the low of the day. We have 106 ticks. This means that price has moved $106 to the downside. And as you can see, price, when we hit the low of the day, we do have a big move to the upside for around $102. And after the price hits the $102 spot, it starts to trade in a very choppy manner meaning that all of our trading opportunities should be inside of this rectangle right here.
When you calculate the daily range, of course price can go even further than the daily range meaning that let’s imagine that price makes this low, and then it retraces to these levels of previous support and resistance and then continues to the down side. That can happen, okay? Meaning that the daily range has gone even larger. Meaning that this product or this financial instrument is even more volatile than what we expected. This means that it’s good for us, because as scalpers, we need volatility and we are going to get even more setups with a more volatile instrument because price is just going to run through levels of support or resistance.
Now it’s important for you to understand it. But if price goes through this low or this low continues to go lower, it means that the daily range is in fact getting bigger. But if price hits these lows and then retraces back to the open of the day or this high, it means that it has already recovered the entire daily range, which means that there’s… We don’t like to be definitive here, but it could mean that this instrument has no more juice in it. As you can see, it’s true because we start to chop with clearly no good setups at all.
This is how you’re going to calculate the daily and this is how you’re going to use it. First of all, you calculate a daily range of all the instruments you are analyzing. You pick the bigger ones, or the ones that are moving the most. And then if the daily range keeps on going bigger, meaning that price continues to trend, you are going to keep on looking for spots to scalp this instrument. But if price retraces all the way up to, or in this case, all the way up because we are in a downtrend. If we were in an uptrend, it would retrace all the way down. But if it retraces to the point of entry or to the point of where the day opened, you might want to move onto another instrument.