V.8:2 (70-73): 2-bar NR and ORB by Toby Crabel
Product Description
2-bar NR and ORB by Toby Crabel
Markets are in a constant state of flux; they are continuously shifting from movement to rest and back to movement again. This interchange is never ending — from contraction to expansion to contraction — with one phase directly responsible for the other's existence. A two-bar narrowing range (2-bar NR), a price pattern that is the narrowest two-day range relative to any two-day range within the previous 20 market days, reflects that market activity and quantifies the market concept of contraction. Thus, contraction is a relative condition that can occur even in a volatile market.
Once a market concept is formulated, it becomes tradeable. In this study, an opening range breakout (ORB) trade was taken the day after the 2-bar NR was formed. An ORB is defined as a trade taken at a predetermined amount above or below the opening range. My assumption is that with a contraction of this kind, trending action would follow the direction of the breakout. Another assumption is that because this pattern is such a well-defined contraction, trending would take place over the next several days. Figures 2 through 9 confirm these assumptions and illustrate, in order:
• The amount above or below the open that the trade was initiated.
• The number of days in the trade (zero indicates an exit on the close the same day of entry, five indicates an exit on the close five days after the entry).
• Whether the trade was a buy or a sell (determined by gross profits only).
• The percentage profitability on each trade (no stops were used on the tests).
• The number of trades.
• The average of all winning and losing trades.
• Gross profit exclusive of commission or slippage.
Markets are in a constant state of flux; they are continuously shifting from movement to rest and back to movement again. This interchange is never ending — from contraction to expansion to contraction — with one phase directly responsible for the other's existence. A two-bar narrowing range (2-bar NR), a price pattern that is the narrowest two-day range relative to any two-day range within the previous 20 market days, reflects that market activity and quantifies the market concept of contraction. Thus, contraction is a relative condition that can occur even in a volatile market.
Once a market concept is formulated, it becomes tradeable. In this study, an opening range breakout (ORB) trade was taken the day after the 2-bar NR was formed. An ORB is defined as a trade taken at a predetermined amount above or below the opening range. My assumption is that with a contraction of this kind, trending action would follow the direction of the breakout. Another assumption is that because this pattern is such a well-defined contraction, trending would take place over the next several days. Figures 2 through 9 confirm these assumptions and illustrate, in order:
• The amount above or below the open that the trade was initiated.
• The number of days in the trade (zero indicates an exit on the close the same day of entry, five indicates an exit on the close five days after the entry).
• Whether the trade was a buy or a sell (determined by gross profits only).
• The percentage profitability on each trade (no stops were used on the tests).
• The number of trades.
• The average of all winning and losing trades.
• Gross profit exclusive of commission or slippage.
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