Trading NR7 setup

Are option premium really high now ?

Look at the table below to get the answer..

I have taken data of last few months when we had approximatly 27/28 days left to expiry. I may not be 100% correct analysis but it is good enough to tell us the reality of current option premium.

This should help u in decide right option strategy.

Happy Trading.

on paper took the positions. lets see.

yes, selling stradles will not give maximum profits but will benefit from time decay and volatality drops. on monday i can see market going up and down in both direction. idea is to close the position of tuesday or close the losing leg based on the direction

if both legs yeild 50rs each , we get 100 rs benefit

imo, budget will be neutral or slightly disappointing. market may pause for couple of days before taking direction and thats the best time to get out

As you clearly pointed out, Short option positons profit from timedecay and drop in volatility.. and that doesn't happen in one day or two day. IMO, We got to give it some room for these two factors to work in our favour.

For a buyer, rules are opposite, they need to quick action so that they don't get hurt by these 2 factors.

As a seller, u shd not think like buyer.. and as a buyer u shd not think like a seller. I think thats where many options trader fail. With each passing day, timedecay starts becoming bigger friend. Just be careful and decide the price level where underlying movement starts hurting you more then the what timedecay can absorb.

What about paper trading this strategy in your "Paper trading straddle.." thread.

Happy Trading.

Nice to see you guys discussion NR setups. Let me add my 2 cents too..

I have noticed that NR's usually occour at the top or bottom of a channel. While NR breakouts can happen on either sides I have noticed that there more often than not the NR breakout happens opposite to the preceding trend. When range narrows during the up move then usually it's a breakdown. Another supporting observation is that many a times if there is going to be a BO/BD from the channel NR is not seen on the BO/BD leg of the move.

Another way is to check the close of the NR day relative to tomorrows pivot (tomorrows pivot is calculated using todays HLC). If C is greater than H+L/2 then the pivot will be lower than close and viceversa. Basically stems from the belief that tomorrow pivot will provide support hoping the opening will be above the pivot.

Another idea is that if the closing is flat tomorrow will be a WR day. This would cause a doji on the charts.

These are some of the things I read which haven't been very successful for me with nifty. I usually watch for NR and ID on stocks for entries and exits. I'm just putting them up there so that someone else could build on these.

Thanks!

Edit: BTW today might end up being an NR day. Since yesterday was a down day, if we close above 4213 today then tomorrow should be a up day.

most likely we are going to end with an inside day + NR7 today

though, still an hour left....



after yesterday's WR-34 (widest range in last 34 days!!! - yup, after two bigs days post election result), such a narrowing of range is usually expected....

today's range is lowest of last 31 days!!!

Following are the latest ranges on Nifty spot.

7-Jul 76.3
6-Jul 346.1
3-Jul 135.5
2-Jul 94.9
1-Jul 112.6
30-Jun 159.4
29-Jun 89.05

So here we have another NR7 day today. (infact last time we say range of 74 points was on 5-June)

Today being inside the 346 pts day range of yesterday, it is also termed as Inside Day (ID).
In Toby's term, today's day will be marked as IDNR-7.

Interestingly, yesterday also gave us range of 346 points which is something we haven't seen since last Oct (taking 711 pts day of monday after election result which was virtually no trading day as mkt was on circuit limit).

Some of the wide range days of recent past are.. (in Toby's term - they are called WS days - wide spread days)

6-Jul 346.1

19-May 341.75
18-May 711.15

27-Oct 329 (The day when we hit the low of 2253)
24-Oct 411

the range of very next day of these days were
7-Jul 76.3
20-May 118.15
28-Oct 169

so it was no brainer to anticipate a narrow range day today.
Lets see what the breakout of NR7 range brings tomorrow /next few days.

Happy Trading.

Is there any way we can know the direction of the breakout?.....I am still struggling figuring out this....

Thanks for sharing your observations on this setup. Giving my view to continue the discussion..


NR is resting day and in my observation, it can be after a trend, giving advance sign a reversal.. OR it can also be a rest before continuation. I don't have any statistics to support it but my gut feel is that
the reversal signal given by NR7 are great.
As you have mentioned about NR in channel, it can be viewed as NR on higher timeframe chart. (the way last week we had apporx 125 points range which resulted in NR4 (missed NR7 by 3 pts) on Weekly chart .

Nice way of integrating Floor Pivot point in trading. In my view, because NR days are resting days/days of no clearity, hence doesn't have much market participation. And in such low action day, it is easy for smart players to move the market. Hence rather than depending on Calculated pivot number to take my trading decision tomorrow, I will prefer to respect the Low of NR day as good support point.
In my trading, if it is IDNR then, I go back by one more day to look at real support level.

Developing 100% mechanical system is a challange from any profitable setup. But it is easy to use the knowledge of this setup to support your other trading decision.
(like after NR7, be prepared to chase the trend. After series of WS days, be prepared for narrow day and focus on booking profit at T1 or be ready with rangebound trading system).

Happy Trading.

as other system this NR 7 also fails many time. it means some time some system or method works or some time other system works. its ur luck wht u get or loose but no system or method is workable. some one make NR7 some will make NR9 . it is only for satisfaction of mind that today it works later if it doesnt work than other system works.

Thank you ...........