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 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.
NR7
|
| Characteristic | Discussion |
| 7 bars | The pattern is composed of seven bars. |
| Narrow Range | The most recent bar must have a smaller high-low price range than the prior six bars (seven bars, total). |
| Breakout | A breakout occurs when price closes above the top or below the bottom of the NR7. |
| 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 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 rule | The 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. |
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.
| Market/Breakout direction | 5% Failure | Average Rise/Drop |
| Bull market, up breakout | 46% | 7% |
| Bull market, down breakout | 47% | -6% |
| Bear market, up breakout | 40% | 8% |
| Bear market, down breakout | 27% | -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.
| Market/Breakout direction | Success |
| Bull market, up breakout | 43% |
| Bull market, down breakout | 37% |
| Bear market, up breakout | 32% |
| Bear market, down breakout | 39% |
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.
| Market/Breakout direction | Bull/Up | Bull/Down | Bear/Up | Bear/down |
| Net profit/loss | $78.79 | $(55.52) | $(91.22) | $(33.63) |
| Wins | 57% | 45% | 45% | 47% |
| Winning trades | 7,600 | 4,990 | 920 | 166 |
| Average gain of winners | $704.84 | $747.91 | $708.69 | $778.41 |
| Losses | 43% | 55% | 55% | 53% |
| Losing trades | 5,791 | 6,218 | 1,112 | 186 |
| Average loss | ($742.84) | ($700.28) | ($753.02) | ($758.35) |
| Average hold time (calendar days) | 31 | 25 | 18 | 14 |
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.
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.
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.
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
Below are other short patterns...
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