Bulkowski on the NR7 Chart Pattern (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 meansthat 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 See Also

NR7

NR7: Important Bull Market Results

Overall performance rank (1 is best)**: 11/23

Break even failure rate*: 46% (up breakouts)

Average rise*: 7%

Percentage meeting price target*: 43%

The above numbers are based on hundreds of perfect trades as of 3/19/2013. See the glossary for definitions.

* Based on the trend high, not the ultimate high. See text.

** Based on the average rise compared to other small patterns with upward breakouts in a bull market

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 NR7is 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 winningtrades. 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.

-- Thomas Bulkowski

See Also

• The Patternz program can find the NR7 and Nr4 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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