Trading NR7 setup

[AW10]

Another boring day on dalal street.. Tight narrow range.. of 37 points today (17-Nov) which is 0.7% of closing price. If you take a bit of approximation and consider the high 5079/5074 as same then yes
we had IDNR7 today.

Previous such tight range days were on 26-Aug - 38.7 point range, which was 0.8% of Nifty spot value of 4680.
Earlier then that we had 9-Sept - 41 points range which was 0.9 % of Nifty spot value of 4817.

So from Range in points - we had NR45 today.. but as per range in % - we had NR-350+ today.. (I have approx 350 days of data in my daily tracker)

Lets zoom out and see weekly picture. Weekly range so far has been of just 85 points against the average of 210+ points. That's is whopping contraction of >50%.
Again this is also the smallest % weekly range that I have seen.

What is important is not the number after NR , but what happened after those NRxx days..

1) After 26-Aug = Nifty formed double top at 4750 level in next 2 days, retraced down for next 4 days. Saw reversal on 5th day with bullish engulfing and then breakout of double top taking
it to the high of 5181. This breakout got stuck in another indecision period of 5 days around 9th september

2) After 9-Sept - Nifty stayed in the range for next 4 days. with one false breakout.. and then breakout of 4800 level to the high of 5181..

My interpretation - mkt has been in indecisive phase for extended period of 4 days (WOW, what a brainy interpretation ?).. Certainly not something that we want to see near prev top. Bulls would call it, mkt taking breath before breakout.. and bears might be getting happy as this indecision near /below the resistance is their dream zone to go for a kill.. I have my own reservations on upside left from here on.. but favour the odds and opportunities that is on the downside. We are seeing divergence in daily RSI / MACD as well which doesn't favour bulls.

There could be false breakouts from it. Next week is F&O expiry week as well hence people will try to protect their position, which will add to the volatility in a narrow range. If new trend develops, then there will be major reshuffling in Option OIs.

This week is options expiry week in US mkt so we might not see major change in direction till global indices till next week. One of the reason that we had seen the fall of last month starting post US option settlement. There are conflicting signs coming out from Central banks as well where on one hand they say that low interest rate regime is going to continue.. and on the other hand they are keeping watch on inflation. Inflation has started going north as per number in UK given yesterday. US CPI numbers are due today (And it has gone up i.e. prices have gone up in US which indicates inflation is building up). Christmas season will throw the real picture of economy from Common mans perspective so it is in indecisive phase. Until numbers depending on common people are not getting greener, it is difficult for global bull market to sustain.

I will be looking for signs of false breakout or strength in breakout to trade the next directional move with Dec contracts.

For now I am pulling out from my Nov position, and focus on Dec (cause next week, I am holidaying). My strangle trades got stuck in this congestion. Lost about 10 rs on each leg due to time decay.
Still not hit my stoploss today (SL at when combined premium of the position goes below 75 Rs), but if it doesn't move tomorrow, then I will be closing it out even if stop is not hit and taking the loss on it.

Hope this helps..

 

[rohangawale]

And, the next day, we had a 3% down move.
In current scenario, a 3% +/- would mean 5200/4900 :thumb:

One more imp thing to notice on that day is,
19th feb nifty was not able to break prev day high and it was and inside day on nifty, nifty continued to break downwards after that 33 points range.

today, we dont have inside day, but instead we broke previous day high.
today was 2NR7 day.
and if tomo we see continuation of trend then we will see uptrend.

lets see what happens.
does history repeats after 180 days and we get 3% move on either side or not.
but one thing is sure that mkt is ready for expansion as today is 2NR7 and mkt is below 100 points range from last 5 trading sessions.

now time to watch which side we get breakout.

 

[AW10]

Rohan, Theoratically, You are right in this interpretation.

But more practical approach, I would be a bit careful in calling 5 points gap between 5074 and 5079 as real break of prev days high. Mkt didn't stay above 5074 for more then 30 mins. And after that failure, 4 times it tried to come closer to 5074, got the beating from bears and came down (poor market).

So this minor break is not real break (it is classic case of failed breakout where price return to the prev zone without spending significant time in new zone). I am more inclined to call it as Inside day.. cause Most of today's price action stayed well within yesterday's range.

Happy Trading

 

[rohangawale]

Rohan, Theoratically, You are right in this interpretation.

But more practical approach, I would be a bit careful in calling 5 points gap between 5074 and 5079 as real break of prev days high. Mkt didn't stay above 5074 for more then 30 mins. And after that failure, 4 times it tried to come closer to 5074, got the beating from bears and came down (poor market).

So this minor break is not real break (it is classic case of failed breakout where price return to the prev zone without spending significant time in new zone). I am more inclined to call it as Inside day.. cause Most of today's price action stayed well within yesterday's range.

Happy Trading

So sir, if price goes to the higher level and just with a spike it make new high and come back to prev range again then it can be called as false breakout??

but can we interpret it like k, bulls are strong and they are trying to reach new high again and again. they were not really going with sink with bears. Bulls were having guts to buy at that level also and so they are trying to make new high at each time interval??


Can we draw some specific ruels regarding false breakout?

 

[rkkarnani]

Hi AW10, Got a hard copy book and found a chapter on Rangetrading!!! Have tried to scanand copy paste the relevant chapter in a Word file!!! Chances are that you are already aware of all that is mentionedthere!!! Anyway do have a look and look forward to your comments,particularly about using NR bar for trading only if it is of certain percentage of last N period bars!!!
I have uploaded it at :

http://tinyurl.com/yj7zw7o

 

[AW10]

Identifying false v/s successful break-outs.

Here are some of my observations that will help in identifying successful v/s false break-outs..

Successful break-outs
- Break-out of the range + followed by retest of the range i.e. retracement + prices reverses in the direction of the break-out without touching the range (or with minor touch)
- Volume picks during the break-out, drops during the retracement and again picks up as it comes near the range.. plus volume increases in next move in the direction of the break-out
- Wide range bar at the time of break-out, followed by further wide range bars.. + small, narrow bars during retracement + wide bars during next leg in the direction of break-out
- No NRx / Doji /small bars after break-out.. i.e. there is no indecision period
- Should see Higher Low / Cup and Handle pattern near the break-out level.. For upper break-out indicating that first level of shorts could push prices down only marginally.
- In many cases, you would start seeing wide bars from this higher low itself before the break-out.


False break-outs
- break-out of the range/ level but price comes back to the range/ level.
- Range expansion / wide bars are not visible after the break (preferably with no tails in the direction of break-out)
- volume does not pick-up
- NRx / Doji /small bars after break-out showing indecision
- is not breaking into Support/resistance zone from higher timeframe else watch out for reaction
- Prev wave leading to break-out has already been in place for long time.. and might have lost the steam to break successfully.

Please feel free to suggest/share your observations as well.

Happy Trading.

 

[AW10]

but can we interpret it like k, bulls are strong and they are trying to reach new high again and again. they were not really going with sink with bears. Bulls were having guts to buy at that level also and so they are trying to make new high at each time interval??

you can interpret in that way if you look at from Bullish perspective. But lets not get biased here.. and be neutral to see who has won the battle today.
All attempts of bulls have failed so Bear had upper hand today.
The break of 5 points also came in first wave of buying after mkt open..That leg is always filled with exuberance/ emotions so we need to keep that in mind while interpreting intraday price action.

During the whole day, Bear's were successful in defending zone which is above 5074. Tomorrow is new day and see which party is able to expand their zone / LOC.

Can we draw some specific ruels regarding false breakout?

Already posted some of my observations. Lets enahance them with the feedback from others.

Happy Trading

 

[Placebo]

Hi Aw10. In false breakout you mentioned

break-out of the range/ level but price comes back to the range/ level.

What i have observed is that all bars which move back into the range and get their top tailed are not bearish. This is just a case of supply swamping demand.

However all false breakouts close below the midpoint of the trading range on increasing volumes and spread indicating selling pressure. This close could be either the same bar or a couple of bars after that.

Just my 2 cents

Cheers
Happy Trading

 

[bandlab2]

i have been following this thread closely. i am yet to find a clear trading plan like entry, exit, stoploss etc. if there is one, we need to update the first post. NR7 is a great concept but translating it into a trading plan is what is important to the traders.

 

[gkpc]

Hi AW10, Got a hard copy book and found a chapter on Rangetrading!!! Have tried to scanand copy paste the relevant chapter in a Word file!!! Chances are that you are already aware of all that is mentionedthere!!! Anyway do have a look and look forward to your comments,particularly about using NR bar for trading only if it is of certain percentage of last N period bars!!!
I have uploaded it at :

http://tinyurl.com/yj7zw7o

It was useless download!!! All that is there is already covered by our Selfless Members here. Most are selfless barring a few!!!