NR4 (Narrow Range 4) + ID

Introduction

Narrow range patterns come from Tony Crabbel's book, Day Trading with Short Term Price Patterns
& Opening Range Breakout. Even though the book, which was published in 1990, is currently out of
print, many of its ideas are still effective. In particular, the NR4 (Narrow Range 4) and NR7 (Narrow
Range 7) patterns are quite popular with short-term traders. The philosophy behind the pattern is
similar to the Bollinger Band Squeeze: a volatility contraction is often followed by a volatility
expansion. Narrow range days mark price contractions that often precede price expansions. Even
though Crabel traded mainly futures, traders can apply these techniques to stocks, indices and ETFs.

Strategy

This strategy starts with the day's range, which is simply the difference between the high and the
low. Crabel used the absolute range, as opposed to the percentage range, which would be the
absolute range divided by the close or the midpoint. Because we are only dealing with four and
seven days, the difference between the absolute range and percentage range is negligible.

Crabel focused on two different narrow range timeframes: four days and seven days. An NR4 pattern
would be the narrowest range in four days, while an NR7 would be the narrowest range in seven
days. It is a very short-term pattern designed to initiate a trade based on an “opening range
breakout”, which is another term from Crabel's book. The opening range breakout (ORB) is based on
the price range in the first five minutes of trading, which is too short of a term for this article.
Instead, chartists can look for an upside breakout when prices move above the high of the narrow
range day and a downside breakdown when prices move below the low of the narrow range day.
Because this is a short-term setup, it is important that the trade starts working right away. Failure to
continue in the direction of the signal is the first warning. After a buy signal, a move below the low
of the narrow range day would be negative. Conversely, a move above the high of the narrow range
day would negate a sell signal.

Chartists also need to consider profit targets and stop-losses. Crabel took profits quite quickly,
usually at the close of the first trading day or on the first profitable close. Again, this is very short-
term-oriented and might not be suitable for all traders. Alternatively, profits can be taken near the
next resistance levels or a percentage target can be used. For stops, chartists can use the Parabolic
SAR to trail stops or base their stops on the Average True Range (ATR). For example, the stop-loss on
a long position could be set two Average True Range values below current prices and trailed higher.

Bull Signal Recap:

1. Identify NR4 or NR7 day.

1. Buy on move above high of narrow range day high.

1. Set trailing stop-loss.

Bear Signal Recap:

1. Identify NR4 or NR7 day.

1. Sell on move below low of narrow range day low.

1. Set trailing stop-loss.

Trading Example
The trading example shows Morgan Stanley with twelve signals in less than three months. The blue
arrows show the NR7 candlesticks and the thin blue lines mark the high-low of the range. A next day
move above the high is bullish, while a next day move below the low is bearish. Notice that NR7 days
formed back-to-back on three different occasions. While not always the case, these back-to-back
NR7 days did not result in different signals, they simply affirm the existing signal from the prior NR7
breakout. With nine signals in total, traders could have to watch price action close, exercise
judgment, and manage stops.

SharpCharts Alternatives

SharpCharts does not offer an indicator that shows the day's range or identifies NR4 and NR7 days.
However, it is possible to scan for NR4 or NR7 days using the Advanced Scan Workbench to write the
code, an example of which is provided in the next section. On SharpCharts, chartists can use a 1-
period Average True Range (ATR) to imitate or estimate the “range” and visually identify “NATR7”
readings, which means ATR is its narrowest in seven days. While this NATR7 will not produce the
exact same signals, many will overlap with the basic NR7 readings. More importantly, the Average
True Range does show when the range is contracting or expanding.
Tweaking

Most chartists will want to qualify NR7 signals because they are quite frequent. A typical stock will
produce dozens of NR7 days in a twelve month period and a daily scan of US stocks will often return
hundreds of stocks with NR7 days. Chartists can increase or decrease the number of narrow range
periods to affect the results. A decrease from NR7 to NR4 would increase the number of stocks
fitting the criteria, while an increase from NR7 to NR20 would decrease the number of candidates. In
general, the number of stocks meeting the criteria will increase as the narrow range period
decreases and decrease as the narrow range period increases.

Chartist can also add other indicators to further qualify signals. In fact, it is often a good idea to add
a trend indicator and an overbought/oversold indicator. Adding a trend indicator ensures that trades
are in the direction of a bigger trend. Adding an overbought/oversold oscillator identifies pullbacks
or bounces to improve the risk-reward ratio.

The chart below shows McDonalds with the 1-period Average True Range (ATR) to mimic NR7
signals, the Aroon indicators to define the bigger trend and the Commodity Channel Index (CCI) to
define overbought/oversold conditions. A bullish signal occurs when Aroon Up is above Aroon Down
(uptrend), the 5-day low for CCI is below -100 (oversold) and the range moves to a seven day low
(turning point). Bearish signals occur when Aroon Down is above Aroon Up (downtrend), the 5-day
high for CCI is above +100 (overbought) and the range moves to a seven day low (turning point).

There were two signals in late November. Remember. Narrow range days are ignored until CCI
moved below -100 when the bigger trend is up, which significantly limits the number of signals. The
first signal did not work, but there was another a few days later that marked a good bottom.
Conclusions

The NR7 day is based on the premise that range contractions are followed by range expansions. In
this regard, the indicator is neutral when it comes to future price direction. As with Bollinger Bands,
chartists must employ other tools for a directional bias. Because NR7 days are relatively
commonplace and the range is small by definition, the chances of whipsaw are above average. A
break above the NR7 high can fail and be followed by a break below the NR7 high. Just be aware of
this probability and keep the bigger picture in mind. In other words, be wary of sell signals within a
bullish pattern, such as a falling flag or at a support test. This article is designed as a starting point
for trading system development. Use these ideas to augment your trading style, risk-reward
preferences, and personal judgments. Click here for a chart of IBM with the Average True Range
(ATR), Aroon indicators and Commodity Channel Index (CCI).
INSIDE DAY NR4 (ID/NR4)

By Galen Woods in Trading Setups on January 31, 2013

Toby Crabel did some serious work on volatility patterns in price movement. The Inside Day/NR4
(ID/NR4) is one of the patterns he wrote in “Day Trading with Short Term Price Patterns and Opening
Range Breakout“.

An inside day is one with a lower high and higher low than the previous bar. NR4 is a bar with the
narrowest range out of the last 4 bars.

Hence, ID/NR4 is an objective criterion for identifying days of decreased range and volatility.

Once we find an ID/NR4 pattern, we aim to trade the breakout as volatility resumes.

TRADING RULES FOR ID/NR4

RULES FOR LONG

1. An inside bar with the smallest range out of the last 4 bars.

2. Place buy stop order above the high of the bar.

3. Wait for a breakout to trigger order.

RULES FOR SHORT

1. An inside bar with the smallest range out of the last 4 bars.

2. Place sell stop order below the low of the bar.

3. Wait for a breakout to trigger order.

TRADING EXAMPLES FOR ID/NR4

WINNING TRADE
This chart shows the daily prices of EUR/USD. The green arrow marks an inside day with the smallest
range out of the last 4 bars (ID/NR4).

We placed a buy stop order placed at the high of the ID/NR4 was triggered the next day. Prices went
up for the next few days.

The previous bullish price action was ideal for this long position.

1. The outside bar with a long bottom tail points to buying pressure.

2. The buying pressure was sustained by the bullish follow through.

3. The three bearish bars before our signal bar was great but the support from the previous
swing low (blue line) held up. The bar that tested the support showed an extended bottom
tail (buying pressure).

LOSING TRADE
This daily chart of chemical giant DuPont listed on NYSE shows an ID/NR4 (green arrow).

We entered the next day as prices broke the high of the ID/NR4 bar. Prices moved sideways for a
few days before stopping us by breaking out of the low of the ID/NR4 pattern.

Dupont was trapped in a trading range. In a range, we should sell high and buy low. However, the
ID/NR4 gave a buy signal at the top of the range.

Let’s take a look at the specifics.

1. After the breakdown of prices, a clear double bottom was formed.

2. Prices bounced off the double bottom with bullish action.

3. This terrible reversal bar (gravestone doji) confirmed that DuPont had entered a range. This
single bar should deter most traders from going long until more bullish action unfolds
beyond the range (marked by the two blue lines).

REVIEW – INSIDE DAY NR4 (ID/NR4)

ID/NR4 are days with low volatility and small range.

Unlike the Bollinger Squeeze which identifies a drop in volatility over several bars, ID/NR4 shows
only a single bar contraction in volatility. Accordingly, ID/NR4 is a short-term volatility pattern.

Hence, it is crucial to look at the price action context before taking any trades with
ID/NR4. Experiment with a trend filter like a moving average and pay more attention to the market
context.

(Need help finding the pattern? We have an indicator for you.)

The winning example shows that, given the right context, this pattern is a great low-risk trigger.

However, if the market is in a range, the ID/NR4 pattern might be part of a prolonged
congestion. The inside bar might even be a trap.

Although I did not cover any intraday trading examples, I have observed similar results while day
trading.

THREE-BAR INSIDE BAR PATTERN

By Galen Woods in Trading Setups on May 13, 2012

Johnan Prathap introduced the three-bar inside bar pattern in the March 2012 issue of Technical
Analysis of Stocks and Commodities. Essentially, this trading setup enhances the standard inside
barbreak-out trade by adding a trend context and a follow-through confirmation.

Read more: Inside Bar Trap – Hikkake Trading

TRADING RULES FOR THREE-BAR INSIDE BAR

LONG TRADE

1. Higher bar close

2. The next bar is an inside bar

3. Another higher close after the inside bar; buy on close

SHORT TRADE

1. Lower bar close

2. The next bar is an inside bar

3. Another lower close after the inside bar; sell on close

THREE-BAR INSIDE BAR TRADING EXAMPLES

WINNING TRADE – LONG TRADE

This is a weekly chart of the Straits Times Index, the barometer of the Singapore Stock Exchange.

It shows a higher close followed by an inside bar pattern. The inside bar then broke out upwards
before ending with a higher close. We made a long entry the second higher close. The blue
horizontal line marks out entry price. After our entry, prices continued its upward trend.

Look at the two long bearish bars in the swing down before our setup. They show that the market
made two serious attempts to go lower. However, price found support at the previous swing
low and formed a bullish reversal bar just before our setup. This context was great for long positions.

Moreover, the inside bar gapped down before trading up to finish the day as a bullish bar. That was
as bullish as an inside bar could get. It was an excellent long trade.

LOSING TRADE – SHORT TRADE

This is a daily chart of Vanguard REIT Index ETF listed on the NYSE.

It shows a bullish inside bar pattern after a lower bar close. The lower close completed the short
trading setup so we went short at the close of the day. The trade went against us on the next day
and proceeded to take out the high of this pattern, where we normally place our stop.

As this was a short setup, the downward trend was to our advantage. Although this pullback up was
complex and retraced more than previous pullbacks, the trend was still pointing down. Hence,
looking for shorts was reasonable.

However, the bullish inside bar was a warning to us. Look at the two bars before and after the inside
bar. It was clear that some choppy trading was going on and whipsaws might follow.

This trade could have been profitable if we had used a wider stop, like a volatility stop instead of a
pattern stop.

REVIEW – THREE-BAR INSIDE BAR PATTERN

The three-bar inside bar pattern modified conventional inside bar trade and made it more useful. It
is impressive as it joined three trading concepts.

1. Making sure that the trend is your friend with the first higher close.

2. Finding a pullback and decreased volatility with the inside bar.

3. Confirming the breakout with the last higher close.

This trade setup serves to illuminate these three concepts. These ideas are beneficial not just for this
setup, but for assessing any trading strategy. This is a sound trading setup.

Pay attention to the inside bar. A bullish inside bar is better for a long setup, and a bearish one is
better for a short setup.

HIKKAKE TRADE SETUP ( ID FAILURE SETUP)

By Galen Woods in Trading Setups on February 23, 2012

Dan Chesler discussed this candlestick trading setup in the Active Trader Magazine in April 2004
(“Trading False Moves with the Hikkake pattern”). Hikkake means to trap, trick or ensnare. This trade
setup seeks to profit from false breakouts.

RULES FOR LONG HIKKAKE

1. An inside bar

2. The next bar has a lower high and lower low

3. Place buy order at the high of the original inside bar for the next three bars

4. Cancel order if not triggered after three bars

RULES FOR SHORT HIKKAKE

1. An inside bar

2. The next bar has a higher high and higher low

3. Place sell order at the low of the original inside bar for the next three bars

4. Cancel order if not triggered after three bars

WINNING TRADE – HIKKAKE TRADE SETUP

This is a daily chart of Cairn Energy listed on the London Stock Exchange. We had an inside bar,
followed by a bar with a higher high and higher low, providing us with a Hikakke setup. We placed
a sell order at the low of the inside bar. Two days later, price triggered the sell order and the stock
went plummeting into profits.

This was an excellent trade as there was a downwards trend followed by a series of five bullish bars,
which gave reasonable hope to the bulls. Hence, bullish traders saw the inside bar as a low-risk
entry for a trend reversal upwards. Note that the inside bar had a good follow through, but not good
enough to even test the bear trend bar three bars before.

When the Hikkake setup came along, the price went south and stopped out the bulls. However, the
hope for a reversal was strong and prices went back to test our entry price two bars later. When that
test failed too, the downwards trend continued.

LOSING TRADE – HIKKAKE TRADE SETUP

This is a daily chart of International Power PLC. We saw a bearish inside bar followed by a bar with a
higher high and higher low. We placed a sell order at the bottom of the inside bar. An outside bar
triggered the sell order. Prices began to drift upwards after that and we lost the trade.

There were two main reasons not to take this trade. First, price broke a bear trend line (not drawn)
before forming a higher low (six bars before the inside bar), hinting at a bullish context which was
bad for shorts.

Next, for a short Hikkake to succeed, we have enough traders betting on a bullish breakout of the
inside bar. However, as both the inside bar and the bar before it was bearish, traders were unlikely
to bet on a bullish breakout. Moreover, it looked like a double top, which again deterred bullish
traders. Without bullish traders trapped, this short Hikkake did not look good.

REVIEW – HIKKAKE TRADE SETUP

This trade setup illustrates the concept of trapped traders. From whom do you think your profits
come from? You always profit at other traders’ loss. This is a fact of the market.

The inside bar has a smaller range and hence a smaller risk. This low-risk inside bar opportunity
tempts many traders. The Hikkake pattern then sets up to enter when these traders have to exit
with a loss. Understanding this concept of trapped trader will help you find the best Hikkake trading
setups, which occurs when the price has trapped many breakout hopefuls.

(Read: 4 Ways to Profit from Trapped Traders)

However, an inside bar is a contraction in range and may lead to a tight trading range where price
action becomes rather unpredictable. This explains why this setup often fails with an outside bar,
which shows strength in both directions. Remember, the context gives the edge.

NR4

08/02/01 11:28:06 AM

by Dennis D. Peterson

NR4, or narrow range 4, is an observation that can help tell when a stock is about to change swing
direction and is not an indicator requiring a choice of parameters

Security: QQQ
Position: N/A

A persuasive argument can be made that a trading strategy that uses no indicators also has the
benefit of not having to choose the parameters for the indicators. You can change parameters to fit
the situation, but the problem is how do you know if the situation has changed such that you now
need to change the parameters? Those who trade using chart price patterns and volume are few but
sometimes well known, such as Gary B. Smith at TheStreet.com.

NR4 is an event. The event is that today's range, high minus close, is the narrowest range when
compared to each of the past three days. NR4 is therefore a pattern. Some traders have reported
that the markets will often make large moves after this event.

NR4 and an inside day are used in the article "Historical Volatility and Pattern Recognition," by
Laurence A. Connors and Linda Bradford Raschke (Technical Analysis of Stocks and Commodities,
September 1996) along with historic volatility. An inside day occurs when the high for today is less
than yesterday's and the low for today is greater than yesterday's. I implemented the trading system
proposed by Connors and Raschke for QQQ, aware that the examples they used were for coffee and
heating oil, and had disappointing results. Their volatility measure does appear to be interesting,
even if my QQQ experience was not, and is the following:

The six day standard deviation of historical price changes divided by the 100 day standard deviation
of historical price changes,

where price changes are calculated by taking the natural logarithm of today's closing price divided by
yesterday's closing price, and then yesterday's divided by the day before, repeating until the natural
logarithm of six changes are calculated, or repeating for 100 days, and then taking the standard
deviation of the last six natural logarithms of closing ratios or the standard deviation of the last 100
natural logarithms. Historical is arrived at by multiplying each by the square root of 260. Then for
scaling, multiply by 100.

Taking the ratio of successive days is appealing because it is a ROC (rate of change) approach. Using
the natural logarithm of the ratios has the benefit of seeing change in ROC, not with changes in
powers of base 10, but of base 2.7183. . . Finally, using a standard deviation is sound way to find an
unusual event, especially when comparing it to the standard deviation of longer-term data.

However with QQQ, NR4 did a reasonable job of identifying points of price change. As I looked at the
equity curve I noticed the biggest drawdowns occurred with downtrends. The same problem was
evident in many places. While NR4 worked reasonably well for entry for an uptrend I couldn't get
out fast enough (or switch to a short) in a downtrend. As much as I tried to finesse NR4 and inside
days without resorting to an indicator with parameters to achieve reasonable equity performance I
couldn't find a way. So in utter desperation I resorted to using my new highs versus new lows
bull/bear indicator to keep me from getting in a downtrending bear market. This is the
unimaginative use of the McClellan oscillator except I substitute new highs minus new lows for
advances minus declines (Figure 1: second chart form top). For this McClellan like oscillator the
system optimization ended up with 14 days for the first moving average and 28 days for the second
because I made the second moving average two times the period of the first.

Figure 1: QQQ daily price and volume history (bottom charts), true/false condition of two values
used in system testing (third chart from top), McClellan like oscillator using new highs new lows
(second chart from top) and equity performance (top chart).

Graphic provided by: MetaStock.

Graphic provided by: Data vendor: eSignal<.

The Metastock code for this McClellan-like oscillator is:

nh:=Security("c:\test\x.nasd-h",C);
nl:=Security("c:\test\x.nasd-l",C);
nhnl:=nh-nl;
nhnlmom:=Mov(nhnl,opt1,E)-Mov(nhnl,2*opt1,E);

where security is a Metastock function that allows me to retrieve, in the case of nh, the Nasdaq
number of new highs from a file called test on my C drive. I used Reuters data for the new highs and
lows and DBC for the rest.

I next plotted the two conditions:

today's close > yesterday's close true and yesterday's NR4 true,

and,

yesterday's NR4 true.

The third chart from the top of Figure 1 shows both conditions because I used the artifice of asking
Metastock to show me -NR4, so that when NR4 is true (a fourth day range is smaller than the
previous three) it charts as minus one and when NR4 is false, it's still zero. What you see is that NR4
events are prevalent from all the times NR4 reached minus one. The top half (Figure1: third chart
from the top) charts the condition that NR4 is true yesterday, and today is an up day (today's close
>yesterday's close).

When you see an event as prevalent as NR4 you know that you are very likely going to have to use it
in conjunction with another event or indicator. The choice that Connors and Raschke made was to
use the ratio of standard deviations of closing price ratios. Bollinger squeezes use a similar
technique, with the rule being that the 20-day standard deviation of price be 1.5 times less than the
six-month standard deviation of price (see Bollinger Bands (Part IV of IV), 3/21/2001).

It's not hard to imagine that if this trading strategy were used for shorts, as well as longs, there
would be a considerable number of trades. You can see from the green buy arrows (Figure 1:
annotation of price chart at bottom) that NR4 is quick to see any start of a potential uptrend. The
problem as stated before is the exit condition or equivalently going short. With my eye I could see
the opportunities but encoding NR4 into a trading system is a bit difficult.

When you think about what NR4 is in real life it is likely to be the end of either a bullish or bearish
wedge or a pennant. Using the fourth day avoids the three-day reversal noise. Flags are fairly
common and unfortunately NR4 is not going to be much help there. Since wedges are continuation
patterns but are counter swings to the main trend, it is not surprising that NR4 events are points of
decision. But the prevalence of NR4 events tells you it could be none of the above - so there is a
significant chance of false signals. I added the condition today's close>yesterday's close the day after
an NR4 to eliminate some of the false signals.

To only use NR4 in a bullish environment I added the condition that the momentum of the
McClellan-like oscillator of new highs and lows be gaining and be above a threshold using the
Metastock formulas

nhnlmom>-opt4 AND Mov(nhnlmom,opt2,E)>Mov(nhnlmom,opt3,E).

Opt4 optimized to 40, while opt2 and opt3 optimized to 4 and 14 respectively. In other words the
McClellan-like oscillator should be above -40 and the four-day exponential moving average greater
than the 14-day exponential moving average.

Trading QQQ allows the use of Nasdaq new highs and lows. Can you think of what the analogous
device would be for say Microsoft?

The result is trading system performance that shows NR4 days can be of benefit:

Annual percentage gain: 21.65%,

Total winning trades = 15,
Total losing trades = 13,
Average win = $58.26,
Average loss = $27.49,
Largest win = $221.85,
Largest loss = $86.68.

Short-Term Pattern: ID/NR4

09/26/05 03:24:07 PM

by Paolo Pezzutti

Range contractions often anticipate high-volatility movements.

Security: N/A
Position: N/A

Markets spend long periods of time developing congestions and trading ranges. The move to new
areas of balance is fast and usually short. The principle of range expansion/contraction was
explained and analyzed by Toby Crabel in Technical Analysis of STOCKS & COMMODITIES. Markets
oscillate between expansion and contraction in a cyclical rhythm. The swing trader enters a low-risk
position and lets the crowd push it into an expansion breakout for a short-term trade.

After a market has had a period of range contraction, a trend day will often follow. This is a condition
for big potential moves. Many traders make money 90% of the time, scalping small profits with
contratrend techniques or simply profiting from dull market conditions. During a trend day, they can
give back most of their profits. When the market is contracting with no interest from the crowd,
your entry presents a very high-reward/risk ratio. Typical patterns include the breakout of an ID/NR4
day (inside day/narrowest daily range of the last four days) or NR7 (narrowest daily range of the last
seven days). In Street Smarts: High Probability Short-Term Trading Strategies,Linda Bradford Raschke
and Laurence A. Connors describe the ID/NR4 in detail.
Normally, the day after the setup, you place a buy-stop order one tick above the ID/NR4 bar and one
sell-stop order below the previous low. If you are filled, you might want to implement a stop-and-
reverse strategy.
FIGURE 1: MSFT. The Microsoft daily chart printed several ID/NR4 setups during the past two
months. Not all of them were profitable. The last one, however, anticipated an explosive price
action.

Graphic provided by: TradeStation.

In Figure 1, you can see the ID/NR4 in action on a Microsoft (MSFT) daily chart:

1. On July 28, the setup produced a sell order. The bar opened near the high and closed near the
low. However, the next day, prices climbed back into the trading range. It is likely this trade would
have been a loser. Much depends on your stop-loss and profit-taking rules. Prices should go
immediately in your direction; otherwise, the trade should be closed. This is a short-term trade. If
you have profits in your pocket, you do not want to give them back. The best thing is to apply a
trailing stop. It can happen that you close the trade too early and you miss a big move, but this is
part of the game.
2. On August 11 and 12, you have two inside days. The first setup did not produce any order the next
day, because prices remained one more day within the previous day's range. On August 15, a short
position was opened, only to see prices go back above the previous day's high. This setup was a
loser. Had you reversed your position, the next day (August 16), you would have seen prices go
down again. Another loser. Prices were still in a congestion.
3. This setup looks like a copy of the first one. A short entry brought profits on the close. The next
day (August 22), prices went back in the congestion.
4. This setup is very interesting and very similar to the one printed on August 11. Two inside days
were printed. The next day, on August 29, a short trade was entered at the open, only to be stopped
out the same day. Had you reversed your position, you would have profited from a three-day up
cycle.
5. Finally, on September 1, this setup worked fine since the beginning. A short trade was entered at
27.14. Microsoft closed the last trading session at 25.27. It is hard to believe that by trading a short-
term tactic, you would have kept this trade open for about two weeks. But this stock printed 14
consecutive down closes! Typically, what happened was an explosive impulsive action, following to a
low-volatility and range-contraction environment.

This is another short-term pattern in your library. As you have seen in this example, it is not always a
piece of cake to trade. It is not a trading system and I believe it cannot be applied mechanically. You
can have small wins and losses until you manage to catch the good trade.

http://www.traderji.com/advanced-trading-strategies/29825-trading-nr7-setup.html

http://www.traderji.com/advanced-trading-strategies/29825-trading-nr7-setup-
59.html#post361639

http://www.traderji.com/advanced-trading-strategies/29825-trading-nr7-setup-
72.html#post371137

http://financeandtradingmadeeasy.blogspot.com/2010/05/stock-future-scanner-nr7-setup-
download.html?m=1

Re: Trading NR7 setup

Since NR7 setup is giving many false signals, one more filter we can add to increase the success ratio
is to use the opening range.

Check for the NR7 list. Next day check the Open Price,

if Open = High and if the price breaks the NR7 Low, then go short. -
if Open = Low and if the price breaks the NR7 High, then go Long.

Stop loss can be kept as Open price instead of NR7 High/Low.

if the above condition is not met, do not take that trade.

This setup would increase the success ratio to 80%. I have tested it for many stocks for one year
period, it worked well.

on 14th Novemebr, Tech Mahindra had NR7 day. Next day, we check the Open, High and Low price,
here we could see the Open = Low. Which indicates a bullish movement, we wait for NR7 High to
break, once the stock crosses 1694, it went up to 1740.

Check the below example for going Short

on 1st April 2013, Tech Mahindra had NR7 day. Next day, we check the Open, High and Low price,
here we could see the Open = High. Which indicates a Bearsih movement, we wait for NR7 Low to
break, once the stock crosses 1052, it went down to 1019.

If Open is between high & low, skip that trade/stock

Please find below the backtest report for TATA STEEL from 2006 to 2014.

The success ratio is comparatively high when you include this additional filter, in fact just plain NR7
setup failed in long run resulting in negative returns for the period of 2006 to 2014.

However, only 50 trades were executed with additional filter which not only increased the winning
%, also the total points gained in 155 with 72% success rate.