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Thomas Bulkowski’s successful investment activities allowed him to retire at age 36. He is an internationally known author and trader with 30+ years of stock market experience and widely regarded as a leading expert on chart patterns. He may be reached at

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Bulkowski's NR7

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Industrials (^DJI):
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As of 01/13/2017
19,886 -5.27 0.0%
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657 -0.99 -0.2%
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The NR7 is based on the high-low price range that is the smallest of the prior six days (seven days total). When an NR7 occurs, it means that today's price is the narrowest of the seven days.

I use the NR7 in the chart pattern indicator because it gives good results. Click here for more information on the chart pattern indicator.

The NR7 pattern
NR7

 

Important Bull Market Results for NR7

Overall performance rank (1 is best)**: 11/23
Break even failure rate*: 46% (up breakouts)
Average rise*: 7%
Percentage meeting price target*: 43%
 
The above numbers are based on hundreds of perfect trades as of 3/19/2013. See the glossary for definitions.
* Based on the trend high, not the ultimate high. See text.
** Based on the average rise compared to other small patterns with upward breakouts in a bull market

NR7 Identification Guidelines

CharacteristicDiscussion
7 barsThe pattern is composed of seven bars.
Narrow RangeThe most recent bar must have a smaller high-low price range than the prior six bars (seven bars, total).
BreakoutA breakout occurs when price closes above the top or below the bottom of the NR7.

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NR7 Trading Tips

Trading TacticExplanation
BuyOnce price closes above the top of the pattern or below the bottom of it, buy/short at the open the next day, respectively.
Alternate buyAnother method is to use the last day of the NR7 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 ruleThe NR7 fulfills the measure rule only 43% 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.

NR7 Performance Statistics

For the following statistics, I used 1,201 stocks, starting from January 1990 to March 2013, but few stocks covered the entire range. All stocks had a minimum price of $5. Since samples were numerous, I included only one every 25 trades. 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 NR7, 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 NR7 and the same peak/valley test after the NR7. The closest valley or peak before the NR7 is where the trend began. The closest peak or valley after the NR7 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.

NR7 Performance and Failure Rates

Table 1: Performance and Failure Rates
Market/Breakout direction 5% Failure  Average 
 Rise/Drop 
Bull market, up breakout46%7%
Bull market, down breakout47%-6%
Bear market, up breakout40%8%
Bear market, down breakout27%-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 NR7.

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NR7 Measure Rule

Table 2: Measure Rule Performance
Market/Breakout direction Success 
Bull market, up breakout43%
Bull market, down breakout37%
Bear market, up breakout32%
Bear market, down breakout39%

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 highest high to the lowest low in the pattern to get the height. Add the height to the highest high or subtract it from the lowest low to get the target.

 

 

NR7 Trading Performance

Table 3: Testing the NR7
Market/Breakout direction Bull/Up  Bull/Down  Bear/Up  Bear/down 
Net profit/loss$78.79$(55.52)$(91.22)$(33.63)
Wins57%45%45%47%
Winning trades7,6004,990920166
Average gain of winners$704.84$747.91$708.69$778.41
Losses43%55%55%53%
Losing trades5,7916,2181,112186
Average loss($742.84)($700.28)($753.02)($758.35)
Average hold time (calendar days)31251814

Table 3 shows the performance based on 29,021 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.

  • Find a NR7 downtrend.
  • Wait for price to close above the top or below the bottom of the pattern.
  • Buy/short at the open the next day.
  • Take profit when price moves 7%.
  • A stop placed 7% away closes out the trade for a loss.

For example, in a bull market after an upward breakout, the net gain was $78.79 for all trades. The method won 57% of the time and there were 7,600 winning trades. The average gain of winning trades was $704.84.

Forty-three percent, or 5,791 trades were losers. They lost an average of $742.84.

The average hold time was 31 calendar days.

Notice how the gains and losses were pegged near 7%, which is how the test was setup.

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NR7 Trading Example

The NR7 chart pattern

The chart to the right shows the NR7 chart pattern (narrow range 7). Each red dot represents the last day -- the narrowest -- of the seven day pattern.

The NR7 is supposed to highlight days of low price volatility, ones that often predict a larger price move within a day or two after the pattern completes. The NR7-2 is supposed to be a more potent version of the narrow range 7. It occurs when the next day is also shorter than any of the prior seven.

The figure shows one NR7 that ends at A (the pattern also appears in the inset).

The breakout occurs at B when price closes above the top of the seven days.

Buy at the open the next day, C.

This trade ends in a loss when price collapses and drops to 7% below the buy price, D.

If the trade had worked, you would have sold at 7% above the buy price.

Chart Pattern Indicator Use of NR7

The chart pattern indicator uses the narrow range 7 chart pattern to signal market turns. It does this not by trading in the direction of price after the pattern completes, but instead it looks for the breakout. Patternz defines the breakout as a close above the top of the pattern or a close below the bottom of the pattern.

The top and bottom use the seven days, from start to end, of the NR7. Since the breakout method works so well for the chart pattern indicator, it might be used to effectively trade the NR7 pattern.

-- Thomas Bulkowski

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Other NR7 Examples

See Also

  • The Patternz program can find the NR7 and Nr4 patterns.
  • The chart pattern indicator uses the NR7 pattern.
  • Below are other short patterns...

    Written by and copyright © 2005-2017 by Thomas N. Bulkowski. All rights reserved. Disclaimer: You alone are responsible for your investment decisions. See Privacy/Disclaimer for more information. If it isn't broke, fix it until it is.