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Home » » What is the NR4 Bar Trading Strategy?

What is the NR4 Bar Trading Strategy?

The Narrow Range 4 Bar (NR4 Bar) trading strategy leverages a candlestick pattern with a narrower price range compared to the previous three candlesticks. This pattern is often used to identify potential breakouts and can be applied in day trading. Here's how the NR4 Bar strategy works and how to implement it:

How to Identify the NR4 Bar Pattern

  1. Definition of NR4 Bar:

    • An NR4 Bar is the most recent bar or candlestick that has a price range significantly smaller than the price ranges of the previous three bars.
    • The price range is the difference between the highest price (high) and the lowest price (low) within one day.

  2. Identification Steps:

    • Step 1: Look for the NR4 Bar pattern on your daily chart. This pattern consists of four candlesticks, with the most recent candlestick having the smallest price range compared to the previous three candlesticks.
    • Step 2: Wait for a breakout from the high or low of the NR4 Bar pattern. This breakout indicates a potential significant price movement.

Trading Rules with the NR4 Bar System

  1. Sell Rules:

    • Conditions:
      • Occurs in a resistance area.
      • Uptrend momentum weakens and the NR4 Bar pattern is detected.
      • The price is testing the support level.
    • Steps:
      • Identify the NR4 Bar pattern on your daily trading chart.
      • Place a sell stop pending order 2 pips below the low of the NR4 Bar.
      • Set the Stop Loss 2 pips above the high of the NR4 Bar.
      • For Take Profit, target the previous swing low level or use a 1:3 risk/reward ratio.

  2. Buy Rules:

    • Conditions:
      • Occurs in a support area.
      • Downtrend momentum weakens and the NR4 Bar pattern is detected.
      • The price is starting to test the resistance level.
    • Steps:
      • Identify the NR4 Bar pattern on your daily trading chart.
      • Place a buy stop order 2 pips above the high of the NR4 Bar.
      • Set the Stop Loss 2 pips below the low of the NR4 Bar.
      • For Take Profit, target the previous swing high level or use a 1:3 risk/reward ratio.

Advantages of the NR4 Bar Strategy

  1. Simple and Easy to Implement:

    • Does not require additional indicators, only uses candlestick patterns and price levels.

  2. Set and Forget:

    • Once you identify the pattern and set pending orders, you can proceed with other activities without constantly monitoring the chart.

  3. Minimizes Overtrading Risk:

    • Generates fewer signals, helping to avoid overtrading.

  4. High Profit Potential:

    • Using the daily chart allows for larger pip gains depending on market trends.

  5. Tight Stop Loss Usage:

    • Helps secure positions from unwanted price movements.

Disadvantages of the NR4 Bar Strategy

  1. Risk of False Signals:

    • There is a chance that the breakout does not occur, and the price reverses, hitting the Stop Loss.

  2. Subjective Range Determination:

    • Beginners may struggle to assess how small the NR4 Bar range should be, potentially missing trading opportunities.

  3. No Fixed Rules for Range:

    • The range of the NR4 Bar can vary, making it difficult to set clear boundaries.

The NR4 Bar strategy is an effective method for detecting potential breakouts with a straightforward approach. Despite some drawbacks, the advantages, such as ease of use and high-profit potential, make it an attractive choice for many traders. Ensure to set Stop Loss and Take Profit levels according to your trading style and risk tolerance.

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