ID/NR4 Bars and Thinkscript

Linda Bradford-Raschke, Laurence Connors, Tony Crabel and many other professional traders have referenced narrow range bars as part of there trading setup arsenal.  LBR likes the ID/NR4 which stands for Inside Day Narrowest Range in 4 days.  That means the high and low of the bar have to be within the prior bar (an inside day) and the overall range itself has to be the narrowest in the last 4 bars.

Referenced in many books authored by the above mentioned traders, ID/NR4 and NR4 bars provide a low risk high reward trade setup.  The setup generally involves trading the break out above or below the ID/NR4 bar and placing a stop at the other side.  Then trail a stop for another bar or two.  LBR stresses that in the event your initial stop gets hit, you should stop and reverse so that you are now in the trade in the other direction.  She states that this is important because many of the moves can be false break outs but the move in the opposite direction can be very powerful after a false break out.  Regardless, these setups do allow for very tight stops and can provide some very good short term edges.  Adding some additional research such as current trend direction if any (Crabel does a lot of this research) or monitoring an opening range break out after a NR4 day (Crabel does this as well) or using some volume analysis can all help you filter NR4 or ID/NR4 bars for even higher probability trades.

Here's a chart, note the blue dots above bars indicate an ID/NR4 bar:

And for those of you on ThinkorSwim, here is the thinkscript:

###DELETE THIS ROW WHEN PASTING INTO TOS###


# ID/NR4 Bars
#
def range = high – low;
def na=double.nan;

def plotter=high+range*0.3;

def longvol = volatilityStdDev(100);
def shortvol = volatilityStdDev(6);

def volratio = shortvol/longvol;

def isnr4 = (range <= range[1] and range <= range[2] and range <= range[3] and range and high<high[1] and low>low[1]);

plot lowvol = if volratio<.5 and isnr4 then low-.0005 else double.nan;

lowvol.SetDefaultColor(color.violet);
lowvol.setstyle(curve.points);
lowvol.setlineWeight(3);

plot nr4 = if isnr4 then plotter else na;

nr4.SetDefaultColor(Color.yellow);
nr4.setstyle(curve.points);
nr4.setlineWeight(3);

###DELETE THIS ROW WHEN PASTING INTO TOS###

This code was adopted from a code for NR7 bars written by ReadtheProspectus at his blog with the same name.  If you like thinkscript it would be well worth it to spend some time at his blog.

Happy Holidays!

TLT