The "NR7 Pattern" (Narrow Range 7) in forex is a technical trading pattern that identifies a period of consolidation and reduced volatility over a seven-candle sequence, which may signal an impending breakout. The pattern was popularized by trader Toby Crabel and is part of a broader strategy to capitalize on volatility contractions that often precede strong price movements.

Key Characteristics of the NR7 Pattern

1. Definition:

   • The NR7 Pattern occurs when the most recent candlestick has the narrowest range (high minus low) compared to the previous six candles.
   • A narrow range in this seventh candlestick suggests a tightening of price action, indicating reduced volatility and potential for a breakout.

2. Market Implication:

   • Like other narrow-range patterns, the NR7 reflects a balance between buying and selling pressures, often in anticipation of a breakout.
   • Low volatility phases, such as those marked by the NR7 pattern, are frequently followed by a surge in volatility as the market seeks a new direction.

3. Trading Strategy:

   • Traders using the NR7 Pattern typically set entry points just above or below the high and low of the seventh candle.
   • If the price breaks above the high, it may indicate an upward breakout, while a break below the low may indicate a downward breakout.
   • Stop-loss orders are commonly placed on the opposite side of the breakout point to manage risk.

4. Confirmations and Enhancements:

   • While some traders rely solely on the NR7 pattern, others look for additional confirmation indicators, such as volume increases, trend strength, or support/resistance levels, to strengthen the breakout signal.
   • Combining the NR7 Pattern with other technical indicators or candlestick analysis can help reduce false breakouts.

5. Timeframes:

   • The NR7 Pattern can be applied on various timeframes, although it tends to be more reliable on higher timeframes like daily or hourly charts, where price consolidations provide stronger signals.

Advantages of the NR7 Pattern

• Simplicity: The NR7 Pattern is straightforward, focusing only on price range contraction, making it accessible for many traders.
• Breakout Potential: Because it identifies periods of low volatility, the NR7 can help traders anticipate potential breakouts, offering entry points for strong price movements.

Example

• If the most recent daily candle has the smallest range compared to the previous six days, it qualifies as an NR7 pattern.
• Traders may then prepare for a breakout in the direction of the next significant price move, setting buy or sell orders just outside the high and low of the narrowest-range day.

The NR7 Pattern helps forex traders anticipate volatility expansion after a period of consolidation, providing a useful entry.