As of 12/20/2024   Indus: 42,840 +498.02 +1.2%     Trans: 15,892 +32.54 +0.2%     Utils: 986 +14.76 +1.5%     Nasdaq: 19,573 +199.83 +1.0%     S&P 500: 5,931 +63.77 +1.1%	YTD  +13.7%   0.0%    +11.9%    +30.4%    +24.3%	Targets    Overview: 12/12/2024     44,200 or 41,750 by 01/01/2025   16,100 or 17,700 by 01/01/2025   1,050 or 975 by 01/01/2025   20,500 or 19,300 by 01/01/2025   6,100 or 5,775 by 01/01/2025
Chart Pattern Indicator: on 12/5/24

As of 12/20/2024   Indus: 42,840 +498.02 +1.2%     Trans: 15,892 +32.54 +0.2%     Utils: 986 +14.76 +1.5%     Nasdaq: 19,573 +199.83 +1.0%     S&P 500: 5,931 +63.77 +1.1%	YTD  +13.7%   0.0%    +11.9%    +30.4%    +24.3%
Targets    Overview: 12/12/2024     44,200 or 41,750 by 01/01/2025   16,100 or 17,700 by 01/01/2025   1,050 or 975 by 01/01/2025   20,500 or 19,300 by 01/01/2025   6,100 or 5,775 by 01/01/2025
Chart Pattern Indicator: on 12/5/24

Bulkowski on the NR4 Chart Pattern

Updated with new performance information on 11/26/24.

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.

Important Results Identification Guidelines Trading Tips Performance Statistics Performance and Failure Rates Measure Rule Trading Performance Trading Example Target Exit, Stock Performance   Target Exit, ETF Performance   Target Exit, Crypto Performance   See Also

NR4

NR4: Important Bull Market Results

NR4: Identification Guidelines

NR4: Trading Tips

NR4: Performance Statistics

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.

NR4: Performance and Failure Rates

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.

NR4: Measure Rule

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.

NR4: Trading Performance

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.

• Find a NR4 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 $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.

NR4: Trading Example

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).

NR4: Target Exit, Stock Performance

The setup for the following tests are different from the ones previously described.

Trading using a target exit is simple to explain. Look at the adjacent chart.

I boxed the NR4 pattern in red. Entry happens when the stock climbs above a buy stop placed a penny above the top of the 4-bar pattern. The target would be twice the height of the NR4 added to the top of the pattern. In this case, the stock rises to meet the target where it is sold for a profit.

A stop loss order placed a penny below the bottom of the pattern helps minimize any losses.

For a more detailed explanation of the method I used to test the NR4, see the link.

Testing

As explained in the example above, I used a target exit placed twice as high as the height of the NR4 pattern (from highest price bar to the lowest one in the NR4). I placed a stop loss a penny below the bottom of the pattern and waited for one or the other to trigger.

Tables 4 show results for bull markets with upward breakouts and an inbound price trend either up or down. I used 492 stocks in the test.

Table 4. The NR4 pattern in stocks for both up and down trend directions outperform the benchmark (which is a random 4-bar pattern) but not by much as the table shows. I don't see anything to be excited about in the results.

NR4: Target Exit, ETF Performance

The associated chart shows an example of how I tested the NR4 pattern in exchange traded funds (ETFs).

I circled the NR4. The day after the pattern ends, we have an upward breakout and we buy the ETF.

A stop loss order placed a penny below the bottom of the NR4 helps limit the effects of adverse moves.

Computing the height of the NR4 (times two), added to the top of the pattern, gives a target price at which to exit. As you can see, the ETF climbed far enough to reach the sale price.

Testing

This is the same test as the prior one except I used 94 exchange traded funds (ETFs) instead of common stocks.

Table 5. In both trend directions, the NR4 beats the performance of the benchmark, but it performs best in downtrends (where price trends lower before the pattern begins).

NR4: Target Exit, Crypto Performance

This chart of a cryptocurrency is similar to the other charts for this test. I placed a buy stop a penny above the top of the NR4 and a stop loss order a penny below the bottom of the pattern.

In this example, the crypto broke out upward but soon reversed and triggered the stop-loss order, posting a loss for the trade.

Testing

This is the same test as the prior one except I used 94 exchange traded funds (ETFs) instead of common stocks.

The NR4 in cryptocurrencies underperforms the benchmark probably because of the low benchmark samples.

-- Thomas Bulkowski

See Also

• Narrow range 7
• Inverted 3L-R (another 4-bar pattern)
• 3L-R (another 4-bar pattern)

Q: What is the difference between a man and E.T.? A: E.T. phoned home.