The NR7 trading strategy is a strategy that is both well-known and popular. If you do a search on the internet you get multiple hits on the strategy. To our knowledge, the strategy was first developed by Tony Crabel as far back as 1990. The NR7 is a volatility strategy but enters on a day with a narrow trading range i.e. low volatility.

**What is the Narrow Range NR7 trading strategy?**

There is an expression in most languages that says it’s calmest 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. You'll have to select a stop and target system that will enable you to ride the trend.

The NR7 is not a mean reversion strategy based on weakness. Trades are entered on low volatility. Low volatility usually happens during bull markets, not bear markets or short-term weakness. So perhaps not the best stock strategy given the current equity bear market conditions.

**Performance**

Performance tests were run by Quantified Strategies on the following rules in the S&P500 index ETF (ticker SPY):

The range, or volatility, is defined as the difference between the High and the Low (each day).

If today has the lowest range of the previous last 6 trading days, then we go long at the close.

We exit at the close when today’s close is higher than yesterday’s high.

The original deposit was $100,000 which was allowed to compound since the inception of the ETF in 1993. The results showed the CAGR was 8.3%, the average gain per trade was 0.27%, there were 895 trades and the max drawdown was 25%. These are reasonably good numbers, but not worth trading because the average gain per trade is a little too low for a holding period of several days - much of it would be consumed by trading costs.

**Improvement**

Using the same entry and exit parameters as above and by adding an oscillator centreline crossover, the results show an average gain per trade increase to 0.42%, there are fewer trades (361) and the max drawdown falls to 16%. Best of all, the win rate is boosted to 76%. Compared to the original strategy, the number of trades were reduced significantly. For such a simple strategy, these are great numbers. It also demonstrates the power of using more than one indicator or price pattern to make your trading decisions.

**Useful Stuff**

Download the NR7 Indicator __HERE__

Download Toby Crabel's book __HERE__

## Comments