A narrow-range day is a pause. When a stock's high-to-low range shrinks to its smallest in a week, or the whole day fits inside the previous day's range, buyers and sellers have briefly reached a balance. Quiet days like these have often been followed by wider ones, and a break of the quiet day's high or low shows which side won. The NR7 and inside day breakout strategy trades that break in the direction of the trend.
Toby Crabel, a futures trader, catalogued these patterns in Day Trading with Short Term Price Patterns and Opening Range Breakout (1990). NR7 stands for the narrowest range of the last seven sessions; an inside day has a lower high and a higher low than the day before. Crabel traded them intraday, entering on a move a set distance away from the next day's open. This preset is a swing version for end-of-day traders: the setup must form in an uptrend (the close above a 50-day SMA that is above the 200-day), and the entry is the next session's close above the setup day's high.
The quiet day also sets tight, logical levels. The buy-stop sits one cent above its high, the stop one cent under its low, and the target twice that risk above the entry. If the move continues, the ATR trailing stop takes over from the initial stop once it is higher. Because the setup day is narrow, the risk per share is small and the share count large, so position size, not the stop, is the main control. The Academy covers the patterns in volatility contraction and candles in context.
The exact rules
These are the rules the NR7 / Inside-Day Breakout preset runs in Clear Tape, checked on daily bars after each close. This page and the software read the same rulebook, so they always agree.
Entry
- Setup day: its range (high − low) is narrower than each of the previous 6 sessions (NR7), or it is an inside day (its high is below the previous high and its low above the previous low).
- Trend on the setup day: the close is above the 50-day SMA, and the 50-day SMA is above the 200-day SMA.
- The buy-stop is one cent above the setup day's high.
- Entry: the next session closes above the setup day's high. Buy at that close.
Stop
- One cent under the setup day's low. Once in the trade, the ATR trailing stop takes over whenever it is higher.
Exit
- The 2R target is reached (a day's high touches it), or the stop or the ATR trailing stop is hit.
Target
- Entry + 2R (twice the entry-to-stop distance). The trade is closed there.
Parameters
| Parameter | Value |
|---|---|
| Narrow range | narrowest of 7 sessions |
| Inside day | lower high and higher low than the day before |
| Trend | close > SMA 50 > SMA 200 |
| Target | 2R |
| Trailing stop | 22-day high − 3 × ATR(22) |
| Minimum history | 220 sessions |
Data it needs
- Daily bars (open, high, low, close), split-adjusted: at least 220 sessions, about 10 months.
Where it differs from the published method
- Crabel's day-trading version enters the next session on a break of the opening range, a set distance above or below the open, and exits at that day's close or the first profitable close. This is a swing variant: a close above the setup day's high, a 2R target and a trailing stop.
Terms used
- NR7 day: A day whose range (high − low) is narrower than each of the 6 sessions before it: the quietest day in 7.
- Inside day: A day with a lower high and a higher low than the day before: its whole range fits inside the previous one.
- SMA (simple moving average): The plain average of the last n closing prices, today included. "The 50-day SMA" averages the last 50 closes.
- Buy-stop: A level one cent above a setup day's high, where a buy-stop order could sit at a broker. The system itself counts the entry only when the next session closes above the setup day's high.
- ATR trailing stop: The highest high of the last 22 sessions minus 3 × ATR(22). While a trade is open it only moves up, never down.
- R (risk per share): Entry minus stop. A 2R target sits twice that distance above the entry.
Who it suits
Traders who cannot watch the session but can run a short routine each evening, and who prefer shorter, more frequent trades. Gap risk must be accepted.
The strategy suits traders who like short trades with a fixed plan: the entry, the stop and the target are known before the order goes in, and most trades end within days. It needs an evening routine to scan uptrending stocks for NR7 and inside days and to note their highs and lows for the next session.
Setups are frequent, and many triggers fail: the break above the high fades and the stop is hit. That makes costs and liquidity important. Thinly traded stocks and quiet sessions before holidays produce narrow days that mean little, so many traders limit the scan to liquid stocks. With a 2R target, the strategy needs to win somewhat more than one trade in three before costs just to break even; the expectancy calculator shows how win rate and payoff combine.
Strengths
- Pullbacks give a lower entry price and an obvious place for the stop.
- Decided once a day after the close; no need to watch the session.
- Two families cover trending markets and choppy markets in a long uptrend.
- Mean-reversion trades exit on strength, typically within two to six sessions.
Weaknesses
- Overnight and earnings gaps can turn a planned 1R loss into 2R or 3R.
- Mean reversion: small gains, with occasional losses several times larger.
- Thin average gains make results sensitive to trading costs.
- Depends on the market: trend entries lose in ranges, dip buys in declines.
Where it struggles: Many false triggers; illiquid stocks; quiet pre-holiday sessions.
Common mistakes
- Buying on the setup day. The narrow day is the setup; the entry needs the next session to close above its high. Buying the quiet day itself means buying before any break.
- Ignoring the trend filter. A narrow day in a falling stock is just as likely to break down. The rule requires the close above the 50-day SMA and the 50-day above the 200-day on the setup day.
- Trading illiquid stocks. A narrow range in a thinly traded stock often reflects missing participants rather than balance, and slippage can consume a small R. Check spreads and costs with the trading cost calculator.
- Oversizing because the stop is close. A $1.91 stop on a $61.50 stock lets 1% risk buy close to a third of a $25,000 account. Cap the position size as well as the risk.
- Moving the target or the stop. Both follow from the setup day's range; widening the stop or raising the target after entry changes the trade's arithmetic. Put the plan into the risk-reward calculator before you enter.
Worked example
Illustrative numbers only. A stock in an uptrend, closing above its rising 50-day SMA, which is above the 200-day, trades between $59.60 and $61.20 today: a range of $1.60, the narrowest of the last seven sessions, and inside yesterday's range of $59.00 to $62.00. The day is both an NR7 and an inside day. The buy-stop for the next session is $61.21 and the stop $59.59.
The next session closes at $61.50, above $61.20, and the strategy buys at that close. Risk per share is $61.50 − $59.59 = $1.91, so the 2R target is $61.50 + $3.82 = $65.32. With a $25,000 account and 1% risk ($250), the position is 130 shares, about $8,000, close to a third of the account. The ATR trailing stop (a 22-day high of $63.00 − 3 × an ATR(22) of $1.50 = $58.50) is below $59.59, so the initial stop governs. If a day's high reaches $65.32, the trade closes for about $497, 2R before costs; if the stop is hit, the loss is about $248, or 1R.
Learn and practice
Academy lessons
- Trend following and breakouts: Bases and pivots: tight ranges, narrow days and volume pivots
- Swing trading: pullbacks and mean reversion: Volatility contraction
- Price Action and Wyckoff: Candles in context: pin bars, engulfing, inside and outside bars
- Price Action and Wyckoff: Breakouts and false breakouts: trading both outcomes
Calculators and guides
- Risk-reward ratio: targets, stops and win rate
- Trailing stops: how they work
- Risk-reward calculator
- Expectancy calculator
- Position size calculator
- Trading cost calculator
Glossary terms
Using it in Clear Tape
- Free Turn on the NR7 / Inside-Day Breakout preset in Trading systems. The rules are written out in full, and you can build your own systems from them (Free: up to 5 systems and a 50-stock watchlist).
- Tools After every close, NR7 / Inside-Day Breakout screens your watchlist and lists its signals, with the entry, the stop and the target drawn on the chart.
- Free Check against my system: every rule of NR7 / Inside-Day Breakout on any stock's daily bars, the levels it sets and the caveats (earnings close by, thin trading, gaps wider than the stop), with a short AI-written explanation of those facts. One check a day on Free as a trial, 10 on Tools, 30 on Pro.
- Tools Backtest NR7 / Inside-Day Breakout with the two-period test: judged on 2000–2014, then run unchanged from 2015 to now against holding the same stocks, with your own costs and risk per trade (Tools 20 backtests a day, Pro 50). Results are hypothetical: each report discloses costs and survivorship bias, and past results do not predict future ones.
- Free Log the trades in the free trade journal, tagged with the system: R multiples, expectancy and an AI score of how closely each trade followed the plan.
- Pro The AI coach proposes rules from the way you actually trade (Pro, 5 conversations a month).
For educational purposes only. Not investment advice. Backtest results are hypothetical and do not predict future results.