Wednesday, March 25, 2009

March 25, 2009 Wednesday Trade 2 Long 1 Contract for Post NR7 Opening Range Breakout

I normally do not trade breakout plays, but this is a rare exception here. The previous day's trading range qualified it to be what is called a NR7 (Narrow Range Seven) daily bar. After a NR7 daily bar, there is a tendency for the next trading day to have a range expansion (it is akin to the trading range tightening and expanding as energy is built up, such as a narrowing bollinger band). Many traders (Mark Fisher, Linda Raschke, Toby Crabel, etc.) will bracket the highs and lows of a given trading range and take the breakout of that range based on their specific rules. What I did personally was observe that the 3 minute stochastics had become embedded in high bands for 5 bars (embedded means both the %K and %D lines are both either over 80 or under 20) which is an indication of extreme strength and a bear trap and fine tune a small pullback entry with the 233 tick stochastics. I only used a 2 point stop and 1 contract because the price was extended from the stronger support levels. All we had protecting us was that red downtrend lines on the highs I drew in the screen grab (symmetric triangle upper channel line) and the upper bracket of the 15 minute opening range. Usually I assume breakouts will fail and trap me so I do not trade them. For more on NR7 Google for Toby Crabel.

Trade 1 (Long 1 Contract +5 Points):
Trade 2 Screenshot