Narrow Range Days

Markets go through cycles of expansion and contraction. This concept is applicable to all time frames. An intra day trader will find periods of small movements within a trading day are followed by bursts of price moving in one direction or the other. A Swing trader can locate days when prices move in a narrow range – these are periods of contraction, followed often by an expansion in price ranges, generally in one direction.

It is useful to track stocks where prices are moving in a narrow range – contraction. Our interest is in what may happen once the contraction is over. A sharp move in prices – expansion – can be expected. NR7 days are one such pattern of narrow range. This is a day when the price range is the narrowest in the last seven days – bulls and bears are equally balanced. One of them is going to get an upper hand, leading to expansion in any one direction. Here is a chart for Jindal Saw where an NR7 was followed by a small up move in price. The up move was enough for a swing trader. It is possible that there may be more upside to come.