Technical Classroom: What is short term patterns?

Market

Now continuing with the Short term patterns we will be discussing about Volatility patterns. There are mainly two types of patterns, NR 4 pattern (NR means = Narrow Range) which will be the narrowest range in four days while an NR7 which will be the narrowest range in seven days.

This strategy basically starts with the day's range, which is simply the difference between the high and the low. Such patterns are useful to initiate a trade based on an opening range breakout. Usually Narrow Range days suggests that volatility is compressing and breakout beyond narrow range days usually starts the next or new direction.

The pattern is composed of four bars. The most recent bar must have a smaller high - low price range than the prior three bars (four bars, total). A breakout occurs when price closes above the top or below the bottom of the NR4. Once prices close above the top of the pattern or below the bottom of it then buy or short at the open the next day, respectively.

The pattern is composed of seven bars. The most recent bar must have a smaller high - low price range than the prior six bars (seven bars, total). A breakout occurs when price closes above the top or below the bottom of the NR7. Once price closes above the top of the pattern or below the bottom of it, buy or short at the open the next day, respectively. It is useful to suggest the trend direction.