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 NR7 Chart Pattern

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

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.

Important Results Identification Guidelines Trading Tips Performance Statistics Performance and Failure Rates Measure Rule Trading Performance Trading Example Chart Pattern Indicator Use of NR7 Target Exit, Stock Performance   Target Exit, ETF Performance   Target Exit, Crypto Performance   See Also

NR7

NR7: Important Bull Market Results

NR7: Identification Guidelines

NR7: Trading Tips

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 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.

NR7: 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 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 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.

NR7: Trading Example

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.

NR7: Chart Pattern Indicator

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.

NR7: Target Exit, Stock Performance

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

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

I boxed the NR7 pattern in red. Entry happens when the stock climbs above a buy stop placed a penny above the top of the 7-bar pattern. The target would be twice the height of the NR7 added to the top of the pattern. In this case, the stock does not rise to the target before the trade is stopped out.

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 NR7, see the link.

Testing

As explained in the example above, I used a target exit placed twice as high as the height of the NR7 pattern (from highest price bar to the lowest one in the NR7). 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 NR7 pattern in stocks outperforms the benchmark but only when the pattern appears in a downtrend, and not by a lot, either: $163.84 versus $145.03.

NR7: Target Exit, ETF Performance

The associated chart shows an example of how I tested the NR7 pattern in exchange traded funds (ETFs).

I boxed the NR7. 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 NR7 helps limit the effects of adverse moves.

Computing the height of the NR7 (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. The NR7 beats the performance of the benchmark but only for the uptrend direction (which is opposite the results shown in Table 4).

NR7: 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 NR7 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 NR7 in cryptocurrencies underperforms the benchmark perhaps because of the low samples (500 versus 3,000).

-- Thomas Bulkowski

See Also

• The Patternz program can find the NR4 and NR7 patterns.
• The chart pattern indicator uses the NR7 pattern.

Below are other short patterns...

• Narrow range 4
• Wide ranging day upside reversal
• Closing price reversal
• Gap2H
• Inverted gap2H
• Upside weekly reversals
• Downside weekly reversals
• Outside Days
• Inside Days
• Shark-32

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