Daily Range Exhaustionthe day has spent its budget
A pair has an average daily range, and most days it does not travel much further than that. When price has already covered its whole average range by mid-session, the rest of the day is more likely to be spent going sideways or giving some back than extending.
This is the only page in the book whose mean is not a line on the chart. The mean here is a distance — how far this instrument normally travels in a day — and the trade is taken when today has already spent it.
The evidence here is for reversion itself, not for this particular measure of it. The ruler below is a way of deciding when price has stretched far enough — it is not what makes it come back.
- Category
- Mean reversion · Session
- Timeframe
- M15 execution · the range measured on D1
- Suitable pairs
- EURUSD · GBPUSD · AUDUSD · XAUUSD
- Session
- Signals from 13:00 GMT onward · flat by the day close
- Indicators / tools
- 20-day average daily range · the running high-low of the current day · ATR(14)
Valid setup
Exact rules
Entry
- Compute the 20-day average daily range, high minus low, and write it down before the session starts.
- Setup: by 13:00 GMT, today's high-low has already reached 1.0 × that average, in one direction.
- News gate: no trade if the extension followed a scheduled release. A range extended by news is a repricing, and it does not have to give anything back.
- Trigger: the first M15 candle that closes against the day's direction after that threshold is reached. Enter at that close.
- One trade per instrument per day.
Stop loss
- Beyond the day's extreme, plus 0.3 × ATR(14) on M15.
- If the day extends past 1.4 × its average range, leave. Days like that exist, and on them this strategy is simply wrong.
- Risk 0.25%–0.5% — below normal, because the stop sits beyond an extreme that has already proved it can be reached.
Take profit / exit
- A 30% retracement of the day's range. Not the open, and not the other end.
- Flat at the day close whatever has happened.
- A partial at 1R is a reasonable variant.
Build Daily Range Exhaustion
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More from Mean reversion
Trading carries risk and most retail accounts lose money. Nothing on this page is financial advice or a recommendation to trade. The chart is an illustration of the rules on constructed candles — it is not a record of a trade and not a backtest.