Narrow Range Day NR7 Trading Strategy Test Results

This series of short articles was inspired by a client of mine who wanted to see the historical performance of a variety of trading strategy ideas which he had read about on other educational trading websites.

To begin with, I searched Google for the term “trading strategies” and wanted to test any trading strategy ideas that could be learned in articles which ranked on Google’s first page.

One of the highest ranked sites if searching for “trading strategies” was stockcharts.com, and so for today’s post I’ll be testing the Narrow Range Day NR7 Trading Strategy explained in this article.

As per the images within the article, I will be testing the strategy on a basket of S&P100 stocks between 2007 and today.

Please also note that $0.01 per share transaction costs will be simulated ($2 minimum per trade).

NR7 Trading Strategy Buy Signal Rules

The NR7 trading strategy has 2 main buy setup criteria, these are:

  1. Identify a stock which has produced the narrowest high to low range of the past 7 days.
  2. Buy on a move above the high of the narrow range day.

For the examples provided in this article the exit strategy for long positions will be a price move above a trailing stop-loss that is 2 * ATR(7) beneath each new high.

Other exit strategy ideas are provided in the original article.

The following $CELG chart shows 5 buysetup examples. Note that narrow range days are indicated by a blue candle and the trailing stop-loss is also plotted on the charts.

 

Note from the above example that trades A, B and E were profitable while trades C and D were losing positions.

NR7 Trading Strategy Short Signal Rules

The NR7 trading strategy has 2 main short setup criteria, these are:

  1. Identify a stock which has produced the narrowest high to low range of the past 7 days.
  2. Go short on a move below the low of the narrow range day.

Again, for the following example the exit strategy will be a price move above a trailing stop-loss that is 2 * ATR(7) above each new low.

Note that all of the 3 Short trades in the example below were profitable.

 

NR7 Trading Strategy Filters

As stated by the author of the original article, because the NR7 signals are so frequent chartists will often want to use further filters to further qualify the signals.

The specific examples given for how a chartist might qualify the signals are as follows:

  • Only enter a long position if the Aroon Up indicator is above the Aroon down Indicator (this indicates a longer-term uptrend).
  • AND the Commodity Channel Index (CCI) is below -100 (this indicates a pullback).
  • Only enter a short position if the Aroon Up indicator is below the Aroon down Indicator (this indicates a longer-term downtrend).
  • AND the Commodity Channel Index (CCI) is above +100 (this indicates a bounce).

As per the parameters used in the original article, the Aroon Indicator is calculated using 63 days and the CCI is calculated using 10 days.

Note in the following example that only one of the narrow range day entries would have been valid if applying the above filters.

 

NR7 Trading Strategy Long Only Test Results

The following performance metrics were produced after testing the NR7 trading strategy long only setups on a survivorship bias free database of S&P100 stocks between 01/01/2007 and today.

Note that a maximum of 20 open positions were allowed at a time and 5% of available equity was allocated to each new position.

 

NR7 Trading Strategy Short Only Test Results

I also tested the short only setups which produced the following results:

 

As the author of the original article stated, the NR7 trading strategy shouldn’t seen as a stand alone system and the strategy was only provided as a starting point for further system development.

If you’d like me to modify and test any of the entry or exit rules in this article, or if you’d like me to test any other strategy that you’ve read about in another publication then please feel free to leave a comment below.

All the best,

Llewelyn

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