Around holidays, especially in the summer, the participation rate often decreases, and subsequently so do volume and ranges. The typical seasonal lulls and end of each quarter are ideal times to do research and update statistics. I keep a spreadsheet with statistics covering average ranges over the most frequently analyzed time frames: day, week, month and quarter.
The spreadsheet (cheat sheet) helps me project how far a move is likely to extend once momentum (direction) has been determined. These vertical measurements can be used to define when a market is overbought/oversold. I frequently use a percentage of the average ranges to define risk and set profit objectives.
Generally, if the range over a 24-hour period spans 175% of an average day range, it constitutes an OB/OS signal. Or when the range over a 48-hour stretch extends the length of an average week, the pace is too great and thus favors a period of consolidation or sideways choppy trade. On the other hand, when the ranges over a few days are well below the norm, odds increase for a vertical move.
We use these stats often during the daily futures class. They can be used to time breakouts, as well indicate when a trend has run its course.
The spreadsheet below shows average true ranges in a few time frames for most commodities, some popular ETFs and Dow Jones 30 stocks. It can be a handy guide when creating strategy.
Senior Futures Instructor
Market Taker Mentoring, Inc.