As of 11/20/2024
Indus: 43,408 +139.53 +0.3%
Trans: 17,002 -26.31 -0.2%
Utils: 1,055 +1.25 +0.1%
Nasdaq: 18,966 -21.33 -0.1%
S&P 500: 5,917 +0.13 +0.0%
|
YTD
+15.2%
+6.9%
+19.7%
+26.3%
+24.1%
|
 46,000 or 43,000 by 12/01/202418,000 or 16,600 by 12/01/20241,075 or 1,000 by 12/01/202420,000 or 18,400 by 12/01/20246,100 or 5,800 by 12/01/2024 |
As of 11/20/2024
Indus: 43,408 +139.53 +0.3%
Trans: 17,002 -26.31 -0.2%
Utils: 1,055 +1.25 +0.1%
Nasdaq: 18,966 -21.33 -0.1%
S&P 500: 5,917 +0.13 +0.0%
|
YTD
+15.2%
+6.9%
+19.7%
+26.3%
+24.1%
| |
|
46,000 or 43,000 by 12/01/202418,000 or 16,600 by 12/01/20241,075 or 1,000 by 12/01/202420,000 or 18,400 by 12/01/20246,100 or 5,800 by 12/01/2024 | ||
The NR4 looks for today's high-low price range to be narrower than any of the prior 3 days. It is the narrowest of the four days.
NR4
|
| Characteristic | Discussion |
| 4 bars | The pattern is composed of four bars. |
| Narrow Range | The most recent bar must have a smaller high-low price range than the prior three bars (four bars, total). |
| Breakout | A breakout occurs when price closes above the top or below the bottom of the NR4. |
| Trading Tactic | Explanation |
| Buy | Once price closes above the top of the pattern or below the bottom of it, buy/short at the open the next day, respectively. |
| Alternate buy | Another method is to use the last day of the NR4 as a trading signal. A close above the top of the last day, or below the bottom of it may suggest the trend direction. Ride price following the new trend until the swing ends. I have not tested this method, so make sure you do. |
| Measure rule | The NR4 fulfills the measure rule only 55% of the time (bull market, up breakout). That is, measure the height of pattern and add it to the highest price in the pattern to get an upward target or subtract it from the lowest low in the pattern to get a downward price target. |
For the following statistics, I used 1,200 stocks, starting from January 1990 to March 2013, but few stocks covered the entire range. All stocks had a minimum price of $5. Since there were too many samples, I only used one of every 50. There were two bear markets in the 2000s (as determined by the S&P 500 index), from 3/24/2000 to 10/10/2002 and 10/12/2007 to 3/6/2009. Everything outside of those dates represents a bull market.
For each NR4, I found when the trend started and when it ended. To find the trend peak or valley, I found the lowest valley and highest peak within plus or minus 5 days (11 days total) each, before the NR4 and the same peak/valley test after the NR4. The closest valley or peak before the NR4 is where the trend began. The closest peak or valley after the NR4 is where the trend ended. I compared the peak or valley to the average of the highest high and lowest low price of the Nr7 pattern.
The 5-bar peak or valley number tends to find major turning points on the daily charts.
I measured performance from the day after the breakout (opening price) to the nearest trend peak or trend valley.
| Market/Breakout direction | 5% Failure | Average Rise/Drop |
| Bull market, up breakout | 46% | 7% |
| Bull market, down breakout | 48% | -6% |
| Bear market, up breakout | 37% | 8% |
| Bear market, down breakout | 28% | -12% |
Table 1 lists failure rates, sorted by market condition and breakout direction along with the average rise or decline.
A failure occurs when the stock fails to move in the direction of the breakout more than 5%.
The failure rates may appear high, but that's typical for short-term patterns like the NR4.
| Market/Breakout direction | Success |
| Bull market, up breakout | 55% |
| Bull market, down breakout | 51% |
| Bear market, up breakout | 47% |
| Bear market, down breakout | 50% |
Table 2 shows how often the measure rule works. Use the measure rule to estimate of how far price is likely to rise or drop.
To do this, measure from the high to the low in the pattern to get the height. Add the height to the high or subtract it from the low to get the target.
| Market/Breakout direction | Bull/Up | Bull/Down | Bear/Up | Bear/down |
| Net profit/loss | $89.20 | $(62.95) | $(63.71) | $46.47 |
| Wins | 58% | 44% | 47% | 51% |
| Winning trades | 5,937 | 4,045 | 819 | 1,008 |
| Average gain of winners | $704.43 | $748.56 | $712.01 | $774.66 |
| Losses | 42% | 56% | 53% | 49% |
| Losing trades | 4,383 | 5,133 | 926 | 952 |
| Average loss | ($744.16) | ($702.45) | ($749.80) | ($724.55) |
| Average hold time (calendar days) | 30 | 26 | 17 | 14 |
Table 3 shows the performance based on 23,203 trades using $10 commissions per trade ($20 round trip), starting with $10,000 per trade. No other adjustments were made for interest, fees, slippage and so on.
Here's the setup.
For example, in a bull market after an upward breakout, the net gain was $89.20 for all trades. The method won 58% of the time and there were 5,937 winning trades. The average gain of winning trades was $704.43.
Forty-two percent, or 4,383 trades were losers. They lost an average of $744.16.
The average hold time was 30 calendar days.
Notice how the gains and losses were pegged near 7%, which is how the test was setup.
The chart shown on the right illustrates the many narrow range 4 (NR4) patterns that can occur in a randomly selected stock. Shown are all of the patterns on the daily scale. Each red dot represents the last day -- the narrowest -- of the four day pattern.
The thinking behind the pattern is that price volatility is a spring being wound, and the spring is the height of the price bar. The smaller the height, the tighter the spring. The direction of the coming release cannot accurately be predicted, but the move is sometimes a violent one.
Price volatility drops at completion of the pattern (meaning a short price bar appears) and within a day or two, price should make a large move, either up or down.
The figure highlights the NR4 at A (that day ends the NR4). I show the pattern in the inset.
At B, price closes above the top of the four-day pattern, staging an upward breakout. Buy at the open the next day, at C.
In this case, price does not follow through and continue the upward move. Instead, the stop is near that shown by the horizontal red line. The open at D closes out the trade for a loss.
Not shown would be a profit target of 7% above the buy price (the stop is 7% below the buy price).
-- Thomas Bulkowski
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