trading NR7ID bar on ASX 200 Index

NR7ID Definitions:

Narrow Range 7 :  or simply an NR7 day is a basic price pattern which simply means that we had the trading day in which the range is narrower than any of the previous six days.

Narrow range patterns come from Toby Crabel  book, ” Day Trading with Short Term Price Patterns & Opening Range Breakout” ( BTW, this book makes into the top ten all time share market related books , we’ll publish that list over the coming weekend , if the readers are interested in that list). Toby Crabel  is the founder of Crabel Capital Management, LLC , currently has over $1 billion in assets under management.

Inside Day:  or simply ID is a day , where the high of the current day is lower than the high of the previous day and the low of the current day is higher than the low of the previous day.

Inside Day Narrow Range 7 : or simply NR7ID is a cocktail made out of combining an ID and an NR7.

Example: 

as can be seen below we had a NR7 day on 26 Jun 2012 (yesterday), as the range of 25.5 is lower than the previous 6 trading days. The high of the 26 Jun 2012 is 4027.8 is lower than the high on the previous day ( 4048.2) and the low of the 26 Jun 2012 is 4002.3 , is higher than the low on the previous day, thus it qualifies as an NR7ID day.

this is how how an NR7ID looks on the candlestick chart

NR7ID setup on 26 Jun 2012

The thinking behind the pattern is on the premise that range contractions are followed by range expansions. The direction of the coming move cannot accurately be predicted, but the move is sometimes a violent one. So Smart traders employ a breakout trading strategy, that is go long one tick above above the high made on the NR7ID day or go short one tick below the low made on the NR7ID day.

let us backtest the above two NR7ID breakout trading strategies

1) Go long above previous trading day’s high after an NR7ID day

trading strategy rules

• previous trading day was an NR7ID day
• go long one tick above previous trading day’s high, if it trades above previous high only (go long only above 4027.80 for the case of 27 Jun 2012 )
• exit at close

NR7ID breakout above previous high on XJO backtest performance summary since Jul 2008

Breakout above previous high NR7ID trading setup details on XJO since Jul 2008

2) Go short below previous trading day’s low after an NR7ID day

trading strategy rules

• previous trading day was an NR7ID day
• go short one tick below previous trading day’s low, if it trades below previous low only (go short only below4002.3 for the case of 27 Jun 2012 )
• exit at close

Below is the performance summary backtest report for NR7ID breakdown below previous low trading strategy on ASX 200 Index (XJO) , since last four years ( i.e Jul 2008 onwards)

breakdown below previous low after an NR7ID trading day on XJO backtest performance summary since Jul 2008

Breakdown below previous low NR7ID trading setup details on XJO since Jul 2008

ps: a negative value ( as highlighted under the Cls-low column)  is indeed a profitable trade in the case of short selling trading strategies.

What would you do , if on the same day if NR7ID set-up triggers both breakout above previous high and breakdown below previous low ( also called whipsaw) ?? , please do read the article , how to trade an Outside day , might give some clues …

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