Trading NR7 setup

[AW10]

Hi Nac,

Appreciate if you can post the trade also on next day...
e.g 5th Nov was NR7 day. this means trade was taken on 8th Nov. i.e short @6300..
When this trade will get closed?... after gaining 200points???

Next NR7 was on 29th Nov so new long initiated @5845
Now another NR7 on 2nd Dec.
Is position opened on 29th Nov closed on 30th in this case? based on considering low of 2nd Dec as SL i.e. 5980
& new short is created @5980....

I am just trying to understand actual application....
appreciate guidance.

rrmhatre, In this thread, I tried to give NR7 as setup only. It is left to trader to extend this setup and define the system based on it - i.e. put precise entry, exit, scale-in/out rules around it.

Application of this setup depends on what type of trader you are. Daytrader can use it to pickup the potential movers of tomorrow (as nac is doing), options traders can use it to trade expansion in volatility in days to come, and swing trader can use to catch potential trend after the pause. Each of these trader will have their own set of rules and will need to do the backtesting of their system to find out what works and what doesn't. (I stayed away from giving a system cause don't want to spoonfeed).

I can give some ideas for exits -
1) Target = range of NR day or 1.21 or 1.68 times the NR day range.
(2) Trail stop as you would do for any trend following system - x days MA based, parabolic SAR based, pivot high/low based, x ATRs away from the last bar etc

As we are trying to catch potential trend, hence I will more inclined towards methods given in (2) above. It doesn't make sense to limit your profit when market is ready to give higher profit.

hope this helps.

happy trading

 

[abhijit sen]

There is a Inside Day NR7 on the Nifty weekly charts. Historically, every time that has happened, the markets have gone up/down by 8-10%. Contrary to what most analysts are saying, i think this consolidation phase is about to end.

 

[ganeshnathan]

Dear Nac,

Thanks a lot for the Nifty NR7 file.

Can you make 1 for the Bank Nifty.

Thanks a lot in advance for the same.

Please a humble request.

Regards,
Ganesh

Hi!

Nifty is on NR7 day, today...

There is a coincidence. Last year, the same day 2nd Dec 2009 was NR7 day. Let see whether history repeats or not...

May be the thread starter could add some point on this... (He is there around after a little while)

 

[marissiva]

thanks karnani sir, eod excel format sheet very useful to me

 

[scraatcha]

Where do I get the excel sheet.

 

[msa5678]

I have posted the draft rules of the stratgy in Post 4 of this thread.
Way forward,
1) Get the test data in NR7 strategy sheet for whatever security that want to test.
2) Get the dates when NR7 was flagged.
3) Open the chart and goto the dates when NR7 was flag.
4) Follow the rules and start travelling towards right on the chart.
5) Log your trade details in this attached sheet. This might be familiar to many of u who were around when we tested 90-10 system.
Just fill in the trade details. You can log trailing SL levels in remark column. Use remark column to its max for recording whatever u observe.
I will give updated version of this backtesting sheet later which will be more useful.

6) Share your doubts/findings/observations here and we take it forward from there.

Bandlab / Ankit /Vineet /anybody else who is willing to work on developing a system. - feel free to post your doubts / assumptions.

Happy System development..

Happy Trading

Dear AW10,

Can u provide a link to the 90-10 system u mentioned in subheading 5 above...I wanted to have alook at the same.....

 

[Wadhwa]

Wonderfully explained. Many thanks.

Wing Commander Wadhwa

Just initiating this thread to discuss possible expansion setup

1) What is NR7 pattern (Narrow Range 7) ?
Market goes thru regular contraction (i.e. daily trading range getting shorter and shorter) and expansion (i.e. daily trading range getting bigger) cycle. Expanding range is followed by Contraction and vice-versa. So if we can indetify the narrow range days, then it give us a step ahead of everybody to benefit from coming expansion.

NR7 is term given to a day that has the daily range smallest of last 7 days including that day.

NR4 is variation of this where the lookback period is 3 days + current day i.e. 4 days.

E.g. -

[B]Date	         High            Low             Range	Remark[/B]
27-May-09	4,286.45	4,115.25	171.20	
28-May-09	4,354.85	4,254.85	100.00	
29-May-09	4,488.05	4,340.75	147.30	
1-Jun-09        4,545.40	4,450.40	95.00	NR 4 day. Range smallest of last 7 entries from 28/May till today i.e. 1-Jun )
2-Jun-09	4,586.40	4,453.40	133.00	
3-Jun-09	4,574.90	4,478.60	96.30	
4-Jun-09	4,582.20	4,453.45	128.75	
5-Jun-09	4,636.85	4,561.95	74.90	NR 7 day. Range smallest of last 7 entries from 28/May till today i.e. 5-Jun )
				
8-Jun-09	 4,611.40	4,404.65	206.75	Break of the low of 4561 of NR7 day took it to low of 4365 in next 2 days.  Notice the range expansion (206+197 points).
9-Jun-09	 4,562.45	4,365.10	197.35

As far as I know, this setup was discussed by Toby Crabel first. Later Linda Raschke has also discussed this in her book "The street smart". To know more about them you can either refer to these sources or raise questions here and I /other members here will try to clarify it.

Happy Trading.

How to Find NR7 day..

1) Get the High and Low data of last few period
2) Calculate the range of each day i.e. high - low) for each day
3) Compare the range of a today and previous 6 days range (to get NR7. To get NR4 get last 3 days range)
4) If todays range is smallest of all 7 days, then today is NR7 day..else not.

It is that simple.

note - This thread is about NR7 SETUP, it is not a complete trading system (though I have given ideas about how to develop a trading system using this setup). Refer to following post to understand the difference between SETUP and TRIGGER.
http://www.traderji.com/swing-trading/40202-trading-ranges-3.html#post439859

 

[msa5678]

rrmhatre, In this thread, I tried to give NR7 as setup only. It is left to trader to extend this setup and define the system based on it - i.e. put precise entry, exit, scale-in/out rules around it.

Application of this setup depends on what type of trader you are. Daytrader can use it to pickup the potential movers of tomorrow (as nac is doing), options traders can use it to trade expansion in volatility in days to come, and swing trader can use to catch potential trend after the pause. Each of these trader will have their own set of rules and will need to do the backtesting of their system to find out what works and what doesn't. (I stayed away from giving a system cause don't want to spoonfeed).

I can give some ideas for exits -
1) Target = range of NR day or 1.21 or 1.68 times the NR day range.
(2) Trail stop as you would do for any trend following system - x days MA based, parabolic SAR based, pivot high/low based, x ATRs away from the last bar etc

As we are trying to catch potential trend, hence I will more inclined towards methods given in (2) above. It doesn't make sense to limit your profit when market is ready to give higher profit.

hope this helps.

happy trading

Dear AW10,

I have started an extensive research on application of NR7 strategy
to Future Stocks. My backtest period is from 15-dec-08 to 15-jan-10.
I am attaching aN Excel Sheet here, Column "A" to "J" is the data copied
and pasted from NSE. All other columns are automatically updated based
on the data from NSE. Column "S" needs to be filled in by visual interpretition.
I have completed the analysis of Stocks starting with the letter "A",
Please note that I have taken only stocks which have Future trading enabled.
I have created a summary sheet also, I find from the summary results that ANDHRABANK,
ABGSHIP and ASHOKLEY have a very good consistency. Andhrabank passed 80.3% times overall
and gave a whooping 82% return over the test period, Similarly ,ABGSHIP passed 75% times
overall and gave a return of 78% over the 2 years period. This analysis helps
in selecting stocks which are consistent over a period of time. Am continuing with
the analysis on other stocks, will post the results depending upon the response of
the members.

 

[AW10]

Dear AW10,

Can u provide a link to the 90-10 system u mentioned in subheading 5 above...I wanted to have alook at the same.....

In order to merge the discussion at one place, I am re-posting my views on another powerful setup "90-10 continuation setup" here.

============================

90-10 continuation setup is great method and I have seen working in other markets again and again..So I strongly believe that it will work in our market as well.

That means if price closes in top 10% or bottom 10% of the range, then it has high probability that the trend will continue in next day. (Your method will be called as 70-30 continuation from this standard.. but that doesn't matter. Please continue with your approach and once we have some data, we can playground with these numbers and improve the system.. )

Let me explain the mkt psychology (as I understand) behind this system which makes me feel that it is based on a strong foundation ....

- Days range defines the boundary of battle between bulls and bears. One of those boundary points the battle was won by one or other party. I.e. at Day High - Bears won the battle and pushed the prices down.. And at Day Low - bulls have won the fight and stopped the prices going further down. So if prices close on upper 10% range by end of the day... then it indicates that bulls are strong at the close..
If you notice.. Market close defines the action by Big Players/ DII/ FII /professionals. whereas Mkt open price is impacted more by retail participants. So If professionals have pushed the prices high .. to the top of the range.. Then they are not going to book profit quickly.

Hence retail /novice traders will join them. They will read the paper/watch CNBC in the night and will feel that mkt is going up and will buy tomorrow. Retail traders are the people who buy after price has gone up and sell when price have gone down.
Professionals do the opposite.. And collect money from retail traders.

Logic is same when mkt closes in bottom 10%.

Hope I am making some sense here.. and it gives people some more belief in this method.

Now coming back to price action on next day.. Most likely mkt will open higher (I am looking for paper trade to give us that %age)... but at some stage people will come to take profit. Generally it happens in first 1 hour of trade or on first reversal on following day. People who bought yesterday will book profit (this may not be professionals but swing traders, or overnight traders).. so prices will retrace. If more professionals start buying tomorrow then trend will continue.. but if they decide to watch market before putting further money, then due to lack of participation from them, market may reverse on next day.

So for your strategy.. my suggestion will be (but decision is yours Kamalesh)

1) Decide Setup criteria like
- look at chart at 3.00 pm / 3.15 pm
- Note days high and low till that time
- see if today is turing out to be a 90% - 10% range.. or not (IMO, 10% from range extreme is good sign to show the strength of bull /bear power that will take push the mkt in the same direction tomorrow... Aim of system should be to take high probability trades.. not more number of trades. One might like to experiment with other % range as well to gain more signals)
- if yes, then go to next step.. else shutdown the machine and do something else..

2) Entry criteria
- buy at mkt / buy at open of 3.05 pm bar / buy at open of 3.20 pm bar.
- Place stoploss order... - at todays low, low of prev 1hr bar, 50 points below our entry.. or anything else.. But we got to think about the risks first. We can very well play around with these parameter later to improve the system
- Note that this SL will protect us with any sudden last min shock that we might see after out entry. Also we need to take care of putting this SL before mkt open (by After mkt hour order so atleast there is some protection).

3)Exit rule -
- Stop loss related points that I mentioned above can very well come here as well
- Profit exit - define some rule.. like exit at 11.00 am on next day, or hold it close of next day and sell on open of following day.. In the absence of this rule, it will become difficult to make it a system and improve. You can also very well look at the break of Pivot low on next day.
- Trailing SL rule - optional.. this will help us in upgrading or SLoss to next level.
Also think about what to if mkt opens below our SL and SL is not triggered. Like Saints method which suggests that we wait for few minutes before taking any action.

4) Data /trade Recording - so that u can analyse it later..
- If I were you, I will record, atleast all the points mentioned in above 3 points. Additional points could be the sentiment of the day etc.

For shorts these rules will be more or less same.. with little bit of adjustments..

Hope this helps. Feel free to raise the question in this thread.
Happy Trading..

======================

Original post (dating back to nov-2008) is here so feel free to refer to that thread as well.

http://www.traderji.com/trading-diary/24946-patterns-technicals-3.html#post248618

 

[AW10]

Dear AW10,

I have started an extensive research on application of NR7 strategy
to Future Stocks. My backtest period is from 15-dec-08 to 15-jan-10.
I am attaching aN Excel Sheet here, Column "A" to "J" is the data copied
and pasted from NSE. All other columns are automatically updated based
on the data from NSE. Column "S" needs to be filled in by visual interpretition.
I have completed the analysis of Stocks starting with the letter "A",
Please note that I have taken only stocks which have Future trading enabled.
I have created a summary sheet also, I find from the summary results that ANDHRABANK,
ABGSHIP and ASHOKLEY have a very good consistency. Andhrabank passed 80.3% times overall
and gave a whooping 82% return over the test period, Similarly ,ABGSHIP passed 75% times
overall and gave a return of 78% over the 2 years period. This analysis helps
in selecting stocks which are consistent over a period of time. Am continuing with
the analysis on other stocks, will post the results depending upon the response of
the members.

Great work msa5678. You have come out with great excel sheet to do prelimiary test of this setup.
And congrats on finding 3 good prey for your trading.

I will suggest you to take a step back and see if you have answered following questions or not..

1) what is your timeframe for trading ? --> Are you going to daytrade these stocks tomorrow, or swing trade them.
2) what is your risk per trade, per day, overnight risk etc ? --> Important if you are planning to trade in F&O cause to contract size, u will limitation in managing your risk.
3) What are you entry/exit/stop/target/trailing stop rules ? --> Even draft rules will be fine at this stage.

Based on the answer of above, now u can spend time on backtesting or paper trading your rules and simulate actual trading as much as possible. IMO, if you repeat the excercise for stocks starting with B, C, D etc, you will have few more target candidates in your hand but still will not be able to trade them. Hence spend time with these 3 stocks, (or maybe some more from B series too..) and once you are comfortable trading them, then increase the basket size.

Hope this helps. Feel free to pose any doubt/findings etc for discussion here.

All the best and happy trading.