NR7 Trading Strategy – Tony Crabels Narrow Range 7 Pattern

The NR7 trading strategy is a narrow-range strategy that is both well-known and popular. The NR7 trading strategy was introduced by Tony Crabel in his 1990 book, ‘Day Trading with Short-Term Price Patterns and Opening Range Breakout.’ The strategy focuses on identifying the narrowest trading range over a seven-day period. Specifically, traders define the NR7 day as the day with the narrowest range in the last seven days. The NR7 strategy is based on the idea that periods of low volatility can lead to explosive price movements. It is primarily used on the daily chart to identify NR7 trading days, but it can also be applied to shorter timeframes like 3-minute or 5-minute charts.

In this article, we backtest the Narrow Range NR7 trading strategy. The strategy works reasonably well, but we improved it by adding one simple parameter.

Introduction to NR7

The NR7 trading strategy is a favorite among short term traders looking to capitalize on periods of low volatility in the market. Originally developed by Tony Crabel, this approach centers on identifying a narrow range day—specifically, a day when the price range is smaller than any of the previous six days. This setup, known as the NR7 pattern, is rooted in the idea that markets often experience a volatility contraction before a significant breakout.

By pinpointing these narrow range days, traders can anticipate potential opening range breakouts and position themselves for the next move. The strategy is particularly effective for those who focus on short term price patterns and are adept at identifying moments when the market is poised for a shift in momentum.

Whether you’re trading stocks, futures, or forex, understanding how to spot a smaller range compared to the last seven days can give you an edge in timing your entries and exits. The NR7 pattern is a powerful tool for traders seeking to harness the energy that builds up during periods of low volatility, setting the stage for the next breakout.

Understanding the NR7 Pattern

At the heart of the NR7 strategy is the ability to recognize the NR7 pattern—a situation where the trading range (the difference between the high and low) is the narrowest it has been over the last seven days.

This narrow range day signals a period of low volatility, which often precedes a sharp move in price as the market transitions from consolidation to expansion. Traders use the NR7 pattern to anticipate these breakouts, watching closely for a decisive move above or below the range to trigger a trade.

The pattern can be even more effective when combined with other technical tools, such as the Bollinger Band Squeeze, which also highlights periods of volatility contraction.

For those looking for a sell signal, a breakout below the low of the NR7 day can indicate the start of a bearish trend. Mastering the NR7 pattern requires a solid grasp of market volatility, adherence to clear trading rules, and an understanding of how percentage ranges can signal the likelihood of a significant price movement. By focusing on the last seven days and identifying the narrowest range, traders can position themselves to catch the next trend as it unfolds.

NR7 strategy video

We also made a video of the strategy and the backtest results. Please note that past performance shown in backtests is not necessarily indicative of future results. Relying solely on historical data may not accurately predict future results, as market conditions and risks can impact real-world effectiveness.

There is an expression in most languages that says it’s calm before the storm. The main idea behind the NR7 is to enter when the daily range is low – when markets are calm (a narrow range trading day – a narrow candlestick). Unfortunately, the strategy doesn’t come with a defined exit strategy – only when to buy.

Thus, we made our own version of the NR7 trading strategy and made the following trading rules listed below. We test the following hypothesis on stocks:

Trading Rules

We make the following trading rules:

1. The range, or volatility, is the difference between the High and the Low (each day).
2. If today has the lowest range of the previous last 6 trading days, then we go long at the close.
3. We exit at the close when today’s close is higher than yesterday’s high.

We have one parameter for entry, and one exit criterion, and a trading strategy can hardly get any simpler than that (?). We test on the S&P 500 using the SPY ETF ticker.

If we invest 100 000 and let it compound since the inception of the ETF in 1993, we get the following equity curve and drawdowns:

The CAGR is 7.1% (time invested is 33%), the average gain per trade is 0.27%, there are 924 trades, and the max drawdown is 26%. These are reasonably good numbers, but not worth trading (in our opinion). We believe the average gain per trade is a little too low for a holding period of several days. If it were an overnight trade or a day trade, we would regard the gains as reasonable.

What about NR7 indicator ( narrow range strategy)?

What if we don’t use an NR7 bar (six past days and the current one) but other number of days? Let’s optimize the strategy by using a different lookback period for the number of days. Another common short-term trading strategy is the NR4 pattern, which identifies the narrowest trading range over the last four days.

Both NR4 and NR7 patterns can signal potential breakouts and trading opportunities based on price ranges over these specific timeframes.

Why do we optimize? We optimize because we are looking for patterns and to check if our original strategy and pattern were good simply due to randomness.

The chart below shows the different P&Ls for different days:

The first column shows the lookback period of the High minus Low. To compare the relative size of trading ranges, traders often use the percentage range, which is calculated by dividing the absolute range by a reference point such as the closing price. The exit criteria are the same. As we can see, the average gain per trade doesn’t increase the longer we hold.

NR7 Trading and Market Analysis

Successful NR7 trading goes beyond simply spotting a narrow range day—it involves a comprehensive approach to market analysis and risk management. Traders often use technical indicators like the Parabolic SAR or Average True Range (ATR) to confirm NR7 signals and refine their entries and exits.

The NR7 trading strategy is versatile, suitable for day trading as well as longer-term positions, and can be applied across various markets, including stocks and forex. By integrating the NR7 pattern with broader trend analysis and momentum indicators, traders can develop a robust trading plan that accounts for market volatility and minimizes the risk of false signals.

Setting clear percentage targets and stop losses is essential to managing risk and protecting your trading account, especially when volatility expands after a period of contraction. Whether you’re looking for a sell signal on a breakdown or aiming to ride a breakout to the next resistance level, combining NR7 trading with sound market analysis can help you navigate the complexities of price movements and improve your overall trading performance.

Can the NR7 trading strategy be improved?

Of course, any strategy can be improved, but we have to be careful not to overfit due to excessive optimization.

We added one simple parameter to our original trading strategy (still NR7, and we kept the same exit parameter,) and we got this equity curve:

The average gain per trade increases to 0.45 and the drawdown goes down to 19%. Compared to the original narrow range strategy, we reduced the number of trades significantly. For such a simple strategy, we believe these are good numbers. Here are some more numbers for the improved strategy:

• The number of trades is 373
• The win rate is 77%
• The average winner is 0.93%
• The average loser is -1.2%
• The profit factor is 2.3.

The win rate (success rate) is very high. We regard the win rate as one of the best metrics for trading strategies.

We don’t disclose the added parameter because the strategy was our monthly trading edge for February 2022 (or you can buy it on trading strategies for sale – see strategy 17):

The advantage of the NR7 trading strategy

Worth noting is that 67% of the trades of the improved strategy are done on a day when the close is higher than the day before. This is a huge advantage. Why is that?

Because we are not necessarily buying on weakness. The best strategies in the stock market over the last three decades have been to buy on weakness – mean reversion strategies. The NR7 is not a mean reversion strategy based on weakness. We are simply entering on low volatility. Low volatility usually happens during bull markets, not bear markets or short-term weakness.

This means that the NR7 strategy complements any mean revertive strategies you might have in your portfolio of strategies, exactly what you should be looking for if you are serious about trading. Please read our separate article on this topic:

The weakness of the NR7 trading strategy

The difference between the High and the Low is the main component of the strategy. Depending on where you download the quotes you can get faulty data. We used data from Yahoo!finance, but be careful of the data. Please read the article below to understand why.

Trading code for the NR7 indicator

In our strategy library, we have trading logic explained for our version in plain English and for all the major trading code languages, such as Amibroker, Trading View (Pine Script) and Tradestation.

Here’s a clean, standalone Python code to identify NR7 days (Narrow Range 7) on daily OHLC data. This is the most common version. it works with pandas DataFrame (e.g. from yfinance, csv, Zerodha, TradingView export, etc.).

Here is the Pine Script code (v5) for the NR7 (Narrow Range 7) indicator.

//@version=5
indicator("NR7 Visual Fit", overlay=true, max_labels_count=500)

// --- Logic: Smallest range of the last 7 bars ---
currentRange = high - low
sixBarMin    = ta.lowest(currentRange[1], 6)
isNR7        = currentRange < sixBarMin

// --- Visual Fixes ---
// 1. Color the bar orange for high visibility
barcolor(isNR7 ? color.new(#ff9800, 0) : na)

// 2. Plot Shapes (Triangles) that scale with the bar size
plotshape(isNR7, "NR7 Top", style=shape.triangledown, location=location.abovebar, color=color.orange, size=size.tiny)
plotshape(isNR7, "NR7 Bottom", style=shape.triangleup, location=location.belowbar, color=color.orange, size=size.tiny)

// 3. Breakout Levels (Price Action Focused)
// We use 'style_linebr' to prevent the lines from connecting across the whole chart
plot(isNR7 ? high : na, "NR7 High", color=color.new(color.green, 30), linewidth=2, style=plot.style_linebr)
plot(isNR7 ? low : na, "NR7 Low", color=color.new(color.red, 30), linewidth=2, style=plot.style_linebr)

// --- Alerts ---
if isNR7
    alert("NR7 Pattern on " + syminfo.ticker, alert.freq_once_per_bar_close)

NR7 trading strategy – ending remarks:

We believe the NR7 trading strategy is a strategy that can potentially add diversification to your existing strategies because it doesn’t necessarily buy on weakness. How the Narrow Range strategy correlates to your other strategies is hard to tell, that is something you need to backtest yourself.

NR7 Trading Strategy: Frequently Asked Questions

What is the NR7 trading strategy?

The NR7 trading strategy is a volatility-based approach developed by Tony Crabel. It focuses on identifying a “Narrow Range 7” pattern, which occurs when the current day’s price range (the difference between the high and the low) is the smallest of the last seven trading days. The strategy is based on the principle that periods of extremely low volatility (contraction) are typically followed by explosive price movements (expansion).

How do you identify an NR7 setup on a chart?

To find an NR7 setup, you must compare the daily price ranges of the most recent seven candles. You are looking for:

• The Range: High price minus Low price for each day.
• The Comparison: The current day’s range must be lower than the ranges of the previous six days.
• The Signal: This “narrow” candle acts as a coiled spring, suggesting the market is consolidating before a potential breakout.

Does the NR7 strategy work on timeframes other than daily charts?

Yes. While Tony Crabel originally introduced the strategy for daily charts, it is highly versatile. Short-term traders often apply the NR7 logic to:

• Intraday timeframes: Such as 3-minute or 5-minute charts for day trading.
• Swing trading: Using weekly charts to find long-term volatility squeezes.
• Note: The core logic remains the same regardless of the timeframe—you are always looking for the narrowest range relative to the previous six periods.

What are the main advantages of using NR7 compared to mean reversion?

Most stock market strategies are mean reversion (buying on weakness or dips). The NR7 is unique because:

• Volatility Focus: It enters based on low volatility, not necessarily a price drop.
• Trend Compatibility: NR7 setups often occur during healthy bull markets where prices are moving sideways rather than crashing.
• Portfolio Diversification: Because it doesn’t rely on “buying the dip,” it can perform well when mean reversion strategies are stagnant.

What are the common risks or weaknesses of the NR7 strategy?

While powerful, the NR7 has specific vulnerabilities that traders should manage:

• False Breakouts: A narrow range can lead to “whipsaws,” where the price breaks out in one direction only to immediately reverse.
• Lack of Exit Rules: The original pattern identifies an entry point but does not provide a definitive exit strategy. Traders must pair it with their own profit targets or trailing stops.
• Data Accuracy: Since the strategy relies entirely on the High and Low of a candle, faulty data from your provider can lead to “fake” NR7 signals.