This guide will explain the NR7 and NR4 strategies (Narrow Range), two powerful price action trading techniques that capitalize on narrow range bars. We will look at the significance of narrow range bars, their role in price action trading, and the differences of the NR7 and NR4 strategies.
What are Narrow Range Bars
Narrow range bars are vital in price action trading as they often signal potential breakouts and directional moves. Defined as bars with a smaller high-low range compared to a certain number of previous bars, they represent periods of consolidation and market equilibrium. These bars play a crucial role in price action trading by helping you anticipate and capitalize on the volatility that follows. To identify narrow range bars on a chart, you have to compare the range of the current bar with the ranges of the preceding bars.
The NR7 Strategy
The NR7 strategy focuses on the narrowest range bars within a seven-bar period. These NR7 bars indicate potential breakouts and market moves due to the consolidation. First identify an NR7 bar by comparing the high-low range of the current bar with the previous six bars. When an NR7 bar is found, entry signals are typically generated when the price breaks above or below the NR7 bar’s high or low, signaling a potential directional move.
Setting stop loss and target levels are crucial for mitigating risk and capturing profits; stop losses can be placed below the low or above the high of the NR7 bar, while target levels depend on the your risk-to-reward ratio and market conditions.
The NR4 Strategy
The NR4 strategy is similar to the NR7 strategy, except that it targets the narrowest range within a four-bar period. To use the NR4 strategy, you start by identifying an NR4 bar by comparing its high-low range to the ranges of the previous three bars. Once you identify a NR4 bar, an entry signal would be when the price breaks either the high or low of the NR4 bar, indicating a potential breakout in that direction.
Which is Better The NR4 Or NR7 Strategy
When comparing the NR7 and NR4 strategies, it is important to recognize their similarities and differences, as well as their suitability for various trading styles. Both strategies focus on narrow-range bars as potential breakout signals, aiming to capitalize on market volatility following periods of consolidation.
The primary difference between the two lies in the number of bars considered—NR7 targets the narrowest range within a seven-bar period, while NR4 focuses on a four-bar period. As a result, the NR4 strategy tends to generate more frequent trade signals, making it more suitable for shorter timeframes and active traders. The NR7 strategy, on the other hand, may be more suitable for those who prefer a lower trading frequency and longer timeframes. Ultimately, choosing the right strategy depends on your personal trading style, risk tolerance, and time horizon.
In conclusion, the NR7 and NR4 strategies are powerful price action trading techniques centered on narrow range bars, aiming to capitalize on potential breakouts and market volatility. While the NR7 strategy focuses on a seven-bar period and is well-suited for traders with a preference for lower trading frequency, the NR4 strategy targets a four-bar period and is better suited for active traders and shorter timeframes.