The NR7 trading strategy was developed by an unknown trader in the late 1990s. It is a technical analysis indicator that is based on the premise that in a highly volatile market, there will be narrow range trading days, indicated by the NR7 indicator, which is calculated by taking the difference between the high and low of the day and comparing it to the previous six days.
What is the NR7 Trading Strategy?
The NR7 trading strategy is a momentum-based strategy that looks for potential reversal points in the market. It is based on the idea that when a market is in a narrow range, it is likely to break out in a particular direction, either up or down.
To spot the NR7 in the market, traders can look for days where the range between the high and low is significantly lower than the previous six days. For example, if the range for the previous six days has been 100 pips or more, and the current day has a range of only 50 pips, it would be considered an NR7 day.
The NR7 trading strategy involves looking for an NR7 day and then entering a trade in the direction of the breakout. If the NR7 day is followed by a day with a higher high or a lower low, it is considered a breakout and a trade can be entered.
There are several key points to consider when using the NR7 trading strategy:
- It is a short-term strategy, with most trades lasting only a few days.
- It is based on the assumption that narrow range days are likely to be followed by a breakout in the direction of the trend.
- It can be used in conjunction with other technical analysis indicators, such as moving averages, to confirm the trend.
NR7 trading strategy
Buy Signal
- An NR7 day is followed by a higher high.
- The market is in an uptrend and the NR7 day breaks above the previous day’s high.
Sell Signal
- If the NR7 day is followed by a lower low, it signals a sell signal.
- If the NR7 day breaks below the previous day’s low and the market is in a downtrend, it signals a sell signal.
NR7 trading Strategy Pros & Cons
Pros
- It is a simple and easy to understand strategy.
- It can be used to identify potential reversal points in the market.
- It can be used in conjunction with other technical analysis indicators to confirm the trend.
Cons
- It is a short-term strategy and may not be suitable for long-term investors.
- It is based on the assumption that narrow range days are likely to be followed by a breakout, which may not always be the case.
- It may produce false signals in choppy or sideways markets.
The NR7 trading strategy can be a useful tool for traders looking to capitalize on potential reversals in the market. By identifying narrow range days and trading in the direction of the breakout, traders can potentially profit from short-term moves in the market.
Conclusion
The NR7 trading technique is a method of identifying possible turning points in the market using technical analysis. It is founded on the belief that when the range between the high and low prices is small, there is a higher likelihood of a breakout in a specific direction. This approach is generally employed for short-term trades and can be combined with other technical analysis methods to verify the trend. While it has its advantages and disadvantages, it can be a valuable tool for traders seeking to capitalize on short-term market movements.
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