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Chapter Four - Pattern Signals: Range Breakout
Section One - Narrow Range Days (Excerpt)

TD_05B.GIFNarrow Range days are trading days in which the range from the highest price traded during the day to the lowest price traded during the day is the narrowest for a specified number of days. An NR4 day is one in which the range is the least of the last four days, including the current day. An NR7 day is one in which the range is the least of the last seven (see chart).

When a Narrow Range signal fires, we can expect range expansion (the trading range of the next day or the next few days will likely be greater than that of the signal day) and a pickup in price volatility (the range of intraday swings is likely to be greater, offering greater price change in each swing).

Of all the Pattern Signals that come out of the pattern screening process, markets that fire Narrow Range days often present the greatest potential for profit. Not every Narrow Range day results in range expansion and a pickup in volatility, but, by practicing appropriate tape reading skills and using a few simple indicators, the trader can be better positioned to capture the move when the expected pickup in activity materializes. The last section of this chapter will discuss ways to capture that profit potential.

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