# Narrow Range Strategy Guide

Narrow range bars is a concept that emerged by Toby Carbel in his book “Day Trading With Short-Term Price Patterns And Opening Range Breakout” in 1990. The ideas Carbel mentioned in his book which is currently out of print are still effective and a lot of authors expanded on them. The two of the more famous ones are Lawrence Connors and Linda Bradford Raschke. They co-wrote a book named “Street Smarts: High Probability Short-Term Trading Strategies”. The idea behind narrow range bars is that the market goes through construction and expansion periods. In which the construction period always preceded the expansion. And the narrow range bars work to identify them using narrow range 4 (NR4) and narrow range 7 (NR7). In this course, we will discuss the narrow range bars, how to identify the NR4 and the NR7, and how to trade them.

## What is narrow range bars ?

Narrow range bars is a strategy based on the breakout that supposes that the price of the financial instrument goes up or down after consolidation in a narrow range. the range is the difference between the high and low of a particular day. However, the breakout might occur in either direction. Indeed, there is two types of narrow range: narrow range 4 (NR4) and narrow range seven (NR7). Each one indicates a specified time frame. For narrow range 4, the default period is 4 days. This means that when the price range of any particular day is the lowest compared to the price in the last three days, then this day represents NR 4 day.

Likewise, for narrow range 7 the default period is 7 days. And this means that when the price range of any particular day is lowest compared to the price in the last six days, then this day represents NR 7 day. However, the day which comes after the NR 4 and NR 7 operates as a confirming day where the price will move farther. Moreover, when the breakout occurs at the low of NR 4 bar then signals bearishness. Whilst, when the breakout occurs at the high of NR 7 then signals bullishness. The idea behind this strategy is to follow the volatility contraction which is often accompanied by a volatility expansion. Narrow range days mark price expansion which is preceded by price contractions.

## How to find NR4 day ?

The narrow range 4 or we can call it NR4 Trading Strategy bars represents the narrowest candle over the last 4 trading days. The NR4 is a formation consisting of 4 candlesticks. However, the fourth candlestick presents a range smaller than the range prior to every three candlesticks. Therefore, to recognize correctly the narrow range four on your price chart you have to find four consecutive candles in which the most recent one has the narrowest range compared to the three previous ones.

In addition, the breakout occurs when the price is above the top or below the bottom of the NR4 bar. Thus if the breakout happens at the top of the NR4 bar, it signals a bullish trend. Whereas, if the breakout happens at the bottom, it signals a bearish trend. Look at the image below to understand more about the narrow range 4 formation and what it looks like in the chart.

## How to find NR7 day ?

Narrow range 7 or called NR7 Strategy bars is similar to the narrow range 4 strategy. It represents the narrowest candle over the last 7 trading days. The NR7 is a formation, consisting of 7 candlesticks. Indeed, the seventh candle in this formation represents a range smaller than the range of the 6 previous candlesticks. However, it is very simple to recognize them in the price chart. You just need to catch seven consecutive candles in which the most recent one has the narrowest range compared to the six previous ones.

Moreover, the breakout occurs when the price is located above the top or below the bottom of the NR7 bar. therefore, if the breakout happens at the above side, it signals a bullish trend. While if the breakout happens at the bottom, it signals a bearish trend. The narrow range 7 strategy requires no indicators, all you need is your eyes. You can trade it with all kinds of currency pairs. And it is preferable to trade it in daily time frames.

## How do you identify NR4 and NR7 ?

### Identify NR4

1. Examine the high and low data of each bar for the last four days.
2. Compute the range for every bar (difference between the high and low).
3. Compare the most recent range with the three previous ones. The recent range must possess the smallest range compared to each range of the prior 3 days. If not it is not an NR4 bar.
4. The breakout occurs when the price is above the high or below the low of the NR4 candle.

### Identify NR7

1. Examine the high and low data of each bar for the last seven days.
2. Compute the range for every bar.
3. Compare the seventh range with the six previous ones. The six days range should be larger than the recent day range (seventh bar). If not it is not an NR7 bar.
4. The breakout occurs when the price is above the high or below the low of the NR7 candle.

## How to trade NR4 and NR7 ?

Narrow range 4 and narrow range 7 is a trading strategy that helps forex traders to follow the bullish and bearish trends when the smallest bar appears. This is a sign that there is a contraction of the volatility in the market and the price is ready to break up or down.

Once you have identified the narrow range 4 or the narrow range 7 on your chart you can move forward and begin trading.

### Enter a long (buy) position:

1. Ensure that the price breaks above the top of the NR4/ NR7 bar.
2. Buy when the price is above the high of the NR4/ NR7.
3. Set the stop-loss below the low of the NR4/NR7 bar.
4. Exit the trade when the price close of 3/6 candles following the breakout Strategy.

### Enter a short (sell) position:

1. Ensure that the price breaks below the bottom of the NR4/ NR7 bar.
2. Sell when the price is below the low of the NR4/ NR7.
3. Place the stop-loss above the high of NR4/ NR7 bar.
4. Exit the trade when the price close of 3/6 candles following the breakout candle.

### Conclusion

Narrow range bars is a trading strategy used by a lot of forex traders in order to identify bullish and bearish trends in the market. This happens by identifying narrow range 4 or narrow range 7 on the chart price and catching the narrowest bar which is called the NR4 or the NR7 bar.