Trading NR7 setup

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AW10

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AW, yesterday we had record setting volume so I think todays low volume is justified. Will have to see wht happens tomorrow and Monday that could set the tone for Aug.

There's serious OI buildup on 4000 Put. That could have happened earlier in the month. Never bothered to check that before. What is your strategy for next month? (if you don't mind let us know :D)

BTW, I've hit 5 centuries with this one (500 Posts):gunsmilie:
Congrats LT for hitting 500 mark in 3months (may till july). I am sure next 500 will take lesser time. Object in motion, remains in motion - basic law of physics and the market trend.

Regarding my strategy for Aug - Go with the market. In this market, where it is hard to judge what next 5 min bar will look like, do u think I can forsee somethign for a month..
Thats not my trading style. Just take each day as it comes.. and be ready for next stage..
Currently, I am ready with breakout strategy with options (long august 4500-4600 strangle from last 3 days). Will adjust it after the breakout.. No prediction of market but just following the market.

Hope u understand my approach..

Happy Trading
 
HI.
I AM A NEW MEMBER .I M IMPRESSED BY THIS NR7 STRATEGY.
SIR,HOW ABT RELIANCE.WHETHER WE CAN SEE NR7.DETAILS AS UNDER:
Symbol Date High Price Low Price RANGE
RELIANCE 17-Jul-09 1966 1925.3 40.7
RELIANCE 20-Jul-09 2039 1950 89
RELIANCE 21-Jul-09 2088.7 2007.35 81.35
RELIANCE 22-Jul-09 2057.6 1962.6 95
RELIANCE 23-Jul-09 2053.8 1987 66.8
RELIANCE 24-Jul-09 2067.4 1986.1 81.3
RELIANCE 27-Jul-09 1995 1906.65 88.35
RELIANCE 28-Jul-09 1959.7 1885.6 74.1
RELIANCE 29-Jul-09 1938 1871 67
RELIANCE 30-Jul-09 1925.4 1889 36.4

WITH THE ABOVE DETAILS,AND CONSIDERING NR7 STRATEGY,I THINK RELIANCE SHOULD GIVE A MOVE.
YOU OPINION PLEASE.

REGARDS,
JKM
 
HI.
I AM A NEW MEMBER .I M IMPRESSED BY THIS NR7 STRATEGY.
SIR,HOW ABT RELIANCE.WHETHER WE CAN SEE NR7.DETAILS AS UNDER:
Symbol Date High Price Low Price RANGE
RELIANCE 17-Jul-09 1966 1925.3 40.7
RELIANCE 20-Jul-09 2039 1950 89
RELIANCE 21-Jul-09 2088.7 2007.35 81.35
RELIANCE 22-Jul-09 2057.6 1962.6 95
RELIANCE 23-Jul-09 2053.8 1987 66.8
RELIANCE 24-Jul-09 2067.4 1986.1 81.3
RELIANCE 27-Jul-09 1995 1906.65 88.35
RELIANCE 28-Jul-09 1959.7 1885.6 74.1
RELIANCE 29-Jul-09 1938 1871 67
RELIANCE 30-Jul-09 1925.4 1889 36.4

WITH THE ABOVE DETAILS,AND CONSIDERING NR7 STRATEGY,I THINK RELIANCE SHOULD GIVE A MOVE.
YOU OPINION PLEASE.

REGARDS,
JKM
 

rohangawale

Well-Known Member
HI.
I AM A NEW MEMBER .I M IMPRESSED BY THIS NR7 STRATEGY.
SIR,HOW ABT RELIANCE.WHETHER WE CAN SEE NR7.DETAILS AS UNDER:
Symbol Date High Price Low Price RANGE
RELIANCE 17-Jul-09 1966 1925.3 40.7
RELIANCE 20-Jul-09 2039 1950 89
RELIANCE 21-Jul-09 2088.7 2007.35 81.35
RELIANCE 22-Jul-09 2057.6 1962.6 95
RELIANCE 23-Jul-09 2053.8 1987 66.8
RELIANCE 24-Jul-09 2067.4 1986.1 81.3
RELIANCE 27-Jul-09 1995 1906.65 88.35
RELIANCE 28-Jul-09 1959.7 1885.6 74.1
RELIANCE 29-Jul-09 1938 1871 67
RELIANCE 30-Jul-09 1925.4 1889 36.4

WITH THE ABOVE DETAILS,AND CONSIDERING NR7 STRATEGY,I THINK RELIANCE SHOULD GIVE A MOVE.
YOU OPINION PLEASE.

REGARDS,
JKM
Ya rel ind is in NR7 range. today most the the stk buy triggered at opening itself when nifty opened and zoooooomed up in mins. from that time there is no moment in mkt.
even the NR7 stks are in same category and now there are no signals to trade. its time to wait for right signal and mkt direction.
 

AW10

Well-Known Member
Yes. jkm10.. As mentioned by Rohan. RIL was certainly in NR7 day yesterday.
Today it gave upper breakout.. but like NIFTY, the breakout did not result in clear trend
but it came back to a range day today.

In nifty, the range of the day was 98 points, which does not show the force that I would like to see in breakout.

To trade this, if one has gone long then the stop should be the low of NR7 day which was yesterday.. In case, market reverses tomorrow and passes thru the stop. then thats where we can go short.. as the upper breakout was false and real breakout may be downward.

Happy Trading
 

AW10

Well-Known Member
LT, It is not only call writing taking place but call buying as well. Someone is buying those calls of 47/4800.

On spread given by your broker - you pay 151 for 4700 call and get back 53+35 for two calls. I.e. you are paying 151-53-35 = 151-88 = 63 from you pocket. So the breakeven will be at 4763. Below this level it will loose money. Moreover you will be blocking the margin for 2 short call options.

You can find many more attaractive opportunities then this. Just selling straddle and holding that for 5 days will give u more money then this thru time decay.

I prefer to have the BE point at support level for bullish strategy.. So that as long as support is respected, the strategy remains in green.

If 4700 is resistence currently. then mkt has to break that first for strategy to work. And 4700 resistence shows its power again and mkt reverses from there then you will be in loss.. You broker has already made moeny from 3 option trades. And sooner or later, u will cut you loss and/or release the margin so he will get brokerage for another 3 trades.

As this is related to spread strategy, do u mind discussing this in my other thread on "low risk option trading --".

Happy Trading
 

lazytrader

Well-Known Member
Right there is call buying as well, but you can't sell unless someone buys. The idea behind it is, (not my idea), option writer are professionals (smart money) the not so smart ones don't venture into writing business. I'm not sure how well it works but some analysis techniques simply revolve around the phrase "the crowd is almost always wrong".

I don't remember the prices but the brokers spread had BE just below 4700. Sorry but I don't remember the details to discuss it :(
 

kenneth

Well-Known Member
R7
via Wall St. Warrior by Jamie on 8/2/09

What is NR7 and what is its significance in trading?

NR7 is the the narrowest bar in the last seven bars. The significance of which is price/volume contraction ahead of expansion. Alan Farley refers to NR7 as a coiled spring. Therefore, if we look to track NR7, we presumably, can find setups that will provide solid entry points and quick results on the plus side of the P&L.

Actionable NR7 setups usually occur in the congestion zone following a decisive move in one direction or the other. Volatility contracts as many participants move to the sidelines awaiting a signal of continuation or reversal of the existing trend.

COILED SPRING

http://www.hardrightedge.com/tour/spring.htm

Markets cycle continuously through bursts of intense activity, followed by periods of relative calm. This natural pulse of inhalation and exhalation allows price to step sharply toward a new level, thoroughly test its boundaries and continue forward (or reverse) after new range resistance is established. As this test evolves toward its final outcome, a stock may exhibit key characteristics of an impending vertical breakout. Smart traders can identify the signature for this Coiled Spring move and make their play well ahead of the crowd.

After a healthy 15-point rally, INTC's low volume price drop flagged the eruption of a Coiled Spring breakout. Following a series of narrow price bars, the expansion day at 85 triggered a runaway 10-point continuation move. INTC


The Coiled Spring arises from continuation of a dynamic trend. The relative power of the last ramping move predicts the inclination (declination) of subsequent price thrusts. Therefore, vertical movement must characterize those price bars. Odds further improve when two moves of the same angle have already taken place, but decrease for three or more prior thrusts.

Visual inspection of price bars within the congestion must demonstrate narrowing range, i.e. overall decrease in average length of the bars or candles. The odds for an impending Coiled Spring breakout increase when the current bar is the narrowest of the last 7 bars. And when each of the last two bars are the narrowest of the last 7, a dynamic breakout (or breakdown) is imminent.

Focus on Day Trading
red


Narrow range bars can be utilized on intraday charts under certain circumstances. Due to lack of liquidity, avoid them on all but the highest volume stocks. Also, insist that their appearance coincides with key support, resistance or other meaningful price levels. And upshift to a 15-min bar chart to capture a better view of short-term conditions.

Under the best of circumstances, traders risk entering a dead market using only narrow bars to choose entry on either 5-min and 15-min charts. But when all other factors converge, as they did with Concord's impressive rally, NR7s provide a valuable cross-verification measure for your day trades.
CEFT Intraday


Volume must trend sharply downward as the congestion progresses. Any volume spike not producing an immediate breakout, but violating the downtrend of the short-term volume, negates the trade. General price movement should counter the prevailing trend. The most powerful CS breaks will occur after price swings sharply against the trend but not violate any significant support or resistance. Use NR7s (narrowest range of the last 7 bars), volume and moving averages to pinpoint the terminus of this counter-trend extreme.

Examining patterns within the next lower time frame will reveal effective trade entry points. Congestion between powerful trending movement frequently appears as a 1-2-3 wave against the trend. Cautious traders also closely review the next time frame above the one under evaluation. Large-scale price development may produce support and resistance not previously considered. Finally, if the larger scale trend is opposite to the current trade, the congestion zone may not immediately resolve into another profitable thrust.

Range Bar Analysis
red

Futures markets have used range bar analysis for years. A classic on the subject, Toby Crabel's Day Trading with Short Term Price Patterns and Opening Range Breakouts, investigates how expanding candle and bar patterns characterize momentum in many commodities and indices. The emotional crowd provides fuel as bar range stretches in the direction of the prevailing trend. Finally, a climax bar prints a sharp reversal under surging volume.

Computation indicators (such as Stochastics) measure bar range indirectly. By going straight to the bars themselves, visual analysis yields profitable short-term prediction. However, not all markets can be accurately examined through range changes. Low volume stocks, for example, carry high spreads that will distort signals. Limit bar analysis to highly liquid markets with low spreads and high average daily movement.

Short-term traders should closely examine small price bar formations. Narrow and wide range bars signal measurable change within the crowd and impending price movement. One classic pattern is NR7, the narrowest range bar of the last 7. These predict breakouts that can be safely traded in the direction of the first impulse. clst

Movement out of a NR7 tends to continue in the direction the NR7 bar is first violated. This tendency allows for a tight stop just beyond the range extreme opposite to the position taken. In CSCO's chart, note how this violation signaled an immediate 8% to 10% thrust.
What timeframe to use for spotting NR7?

NR7 can be traded on any timeframe, but the longer the timeframe, the more meaningful the setup. So using a 15 minute chart for daytrading NR7 would likely have more meaningful results than a 1 or 3 minute timeframe. I currently monitor NR7 bars on the Trade Ideas Scanner which runs on the 15 minute timeframe. The scan was developed by Trader Mike for TI, and the archives Mike's blog are a great resource for NR7 trading tips.

So, once NR7 scans spit out a list of candidates, what do we look for as far as actionable trade setups?

It's easier to define your criteria beforehand, rather than using a process of elimination. As we stated earlier, actionable candidates have already made a decisive move and are consolidating that move. So if I'm scanning my usual suspects watchlist, I want to focus on sectors/stocks that are in or near the top or bottom of their recent trading range, or stocks that have already broken out and are forming a base such as a handle or flag through price/volume contraction.

How do the key moving averages come into play?

In reference to the 15 minute timeframe -

* avoid trading NR7 if the 50 SMA is flat and close to price. Why? By my definition, the 50 SMA defines the broader trend and a flat 50 SMA means the stock has no trend. The closer it is to price, the more likely the stock has little or no pulse. Therefore, in this case, it's better to wait for price to make a move before jumping in;
* in the a.m. (EST) look for proximity to the rising/declining 5 period EMA;
* in the p.m. look for proximity to the 20 EMA if you spot am ambush-like setup.


How do we define the bar count to determine a real NR7?

The TI scanner has a continuous count from one day to the next. If a stock had a series of NRBs at the end of the previous day, we likely won't print NR7 on the scan until the 7th bar. How practical is this? It may not be practical for gappers, so we have a second, work around, strategy for gappers - NRIBs (narrow range inside bars), again in very close proximity to the sloping 5 period EMA. The sweetest setup of all is the NRIB (NR7).

Let's look at some examples of NR7

GXDX, from the TI pre-market gap scan, printed NRIB NR7. The way I trade these is to place a buy stop order above the outside bar. Once the trade executes, I place a stop pennies below the outside bar. GXDX is an example of NR7 in the context of a gap trade. I didn't trade it.

GG was a NR7 from the TI scanner on Friday. AEM, NEM and GG all printed NR7 at the same time. AEM had already filled it's gap, so I entered long GG and NEM.

RIMM is a trade from June 19th following a disappointing earnings report. The NRIB sets up at the base (handle) of an inverse C&H pattern.

All of these setups meet the primary criteria:

* consolidating after a decisive move;
* close proximity to sloping 5 period EMA;
* NR7 price and volume contraction;
* easily identifiable base or chart pattern.

On days where the markets gap and run, the NRIBs usually setup within the first hour, so keep that in mind as well. Running the TI NR7 scan on the entire universe of stocks (even with filters) is a waste of time because many of the candidates will be anemic, flat liners. Best to use the TI NR7 scan in the context of a WL and/or as an add on to pre-existing scan either gaps or breakouts. As an add on, the first criteria is already met before it prints NR7. The WL is usually small and manageable, and presumably you've done the homework and already have a focus list.
 
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