Daily True Range (DTR) as commonly referred is the Difference between High and Low to the Open of the Day.
“Daily True Range has its importance in Day Trading where trades have to be squared-off by end of Day.”
It revolves around trying to gauge any scope for further Intra day rise or fall in the direction of trade.
It starts with noting the day’s high and low and the difference as a percentage to Open of the Day.
It is a foot rule guide for measuring price flow in terms of percentages that can relate well to the percentage margin one pays for a trade.
It can help in deciding at what stage of momentum one can assume that the best of the rise or fall has occurred.
Every day a Stock or an Index may have its own milestones, occurrences that may term it as an Event Day.
An Event Day or a Non-Event Day for the stocks is defined by percentage to open depending upon the difference in high and low of that stock.
The DTR differs on Event Days like Corporate Results and other wise on Non-Event Days.
DTR – Day’s True Range, is Difference between High and Low of the day as a percentage to Open Price.
Namely in Intra Day we follow:
DTR (Open Range): It is the DTR at the end of Open Range of first 15 of a Day.
DTR – OR therefore is Difference between High and Low of the day till the Open Range ends at 9:30 a.m. as a percentage to Open Price.
In Fig.1, DTR – OR is the circled highlighted in yellow.
The percentage has its significance, it must not exceed 0.76% for a stock, in order to allow scope for trading gains later.
On the right corner, is the DTR in value and percentage updated at every tick. At the close of the day, it reveals the DTR value and percentage at the close of day.
As the day progresses, next comes the Breakout from the Open Range High or Low with a valid breakout process.
DTR at the time of Breakout is DTR – B
In Fig.2, you will observe that
a. DTR – OR – 0.93%
b. DTR – BO – 1.47%
c. DTR – 3.13% ( EOD)
Depending on DTR-BO, a trader can decide DTR Left (DTRL) which in percentage terms may see price flow. Provided, DTR Average as per margin is known.
DTRA is the Average of difference in high-low recorded over the nearest past few months basis the liquidity and volume of transactions. Such average is adjusted to nearest Fibonacci values as shown in Fig. 3 (Pic.1)
As shown in Fig.3, margins vary from 0.25% to 5% in Cash or Spot. Accordingly, the average Max DTRA on a Non-Event Day (NED).
However, on Events Days (ED) with results or any other announcements by the company, stocks tend to exhibit more volatility.
Like in the case of SBI with 0.5% margin, the stock that may show DTRA – 2.23% on NED days as per table but may be more volatile and have range to the extent of two levels higher of up to 3.23%.
A table with DTRA on both NED & ED Days in Pic.2 (Fig.4)
DTR-L as referred earlier is the possible scope left in percentage terms of a likely further price flow in the direction of trend and therefore
DTRL = DTRA – DTR
For example, if you wish to Enter in a Trade in 0.5% Margin stock HDFC Bank which has probability of High to Low percentage difference of 1.62% on NED. At the time of Entry, the DTR achieved was 0.54% then balance of DTR Left (DTRL) is 1.08%, which can be sizeable as Margin is 0.5%.
A Ready Reference document: https://docs.google.com/spreadsheets/d/1BgUI20NXXRWSAhwTpi4bWFrrYk8-X6WP9rtVR68DOdw/edit#gid=0
This document updates every 5-10 seconds on DTR-L and DTR with Targets on upside and downside calculated based on DTR-A.