NR4 Trading Strategy

The NR4 trading strategy is a price action trading system which is based on today’s high to low price range that must be narrower than the previous 3 days. 

Timeframes : Preferable daily

Instrument : Any

 Indicators : Not required

Identifying the NR4 Pattern:

  • The NR4 (Narrow Range 4) pattern is made up of four candlestick.
  • The last candlestick must have a range that is smaller than the 3 previous candlesticks.
  • A breakout forms when price closes above or below the high or low of the NR4 candlestick.

 

NR4 Short Trade Setup Rules:

The best sell setups locations to go short are:

  • Resistance levels where price is showing weakness in momentum and then there is a formation of narrow range 4 candlestick
  • Then the Price breaks the support levels and goes down and then retraces back to the support level and shown weakness by forming the NR4 candlestick as shown on the sell setup chart below.

 

Trading rules for short entries:

  • First identify the narrow range 4 candlestick on daily chart
  • Then place sell stop pending order 2 pips below the low of the NR4 candlestick
  • And then place stop loss 2 pips above the high of the NR4 candlestick.
  • For take profit, set at 1:3 risk: reward ratio or aim for previous swing low price level.

 

Let us explain with a chart below:

NR4 Long Trade Setup Rules:

The best place buy setup rules are:

Support levels where price is showing downward weakness by forming the NR4 candlestick like shown on the chart below.

Long Trading Rules:

  • First Identify the narrow range 4 candlestick on daily chart
  • Then place a buy stop pending order 2 pips above the high of the NR4 candlestick
  • And then place stop loss 2 pips below the low of the NR4 candlestick.
  • For take profit, set at 1:3 risk : reward Or aim for previous swing high price level.

 

Let us explain with a chart below:

Pros :

  • Very simple price action trading strategy.
  • You can just set and forget about it.
  • Will help in avoiding overtrading.
  • Easy to follow as will need only a few minutes a day to check if a setup has formed or not and place pending order.
  • Trading on the daily chart means that profit potential of this system is not on 10 of pips but by 100-300 or even more and that depends on how strong the market trend is going.

 

Cons :

  • As with all trading strategies, every system has it weaknesses. There will be times when there will be false signals, when we will see price active pending order and we think a breakout has happened but then it reverses and will take out our stop loss. Such is the nature of market.
  • There is a not clear and fast rule about how narrow the NR4 candlestick should be. It’s a visual thing and this may sometime cause a few issues for new traders and we can miss excellent trading setups that form.

China’s decision of banning Australian coal impacts Aussie

Australian shares were set to open lower on Tuesday, with the benchmark weighed on by heavyweight miners’ fears of Chinese regulatory scrutiny into iron ore prices. Iron ore futures slumped on Monday as speculative interest in the steelmaking ingredient faded after China’s steel producers pushed for a regulatory probe into skyrocketing prices and a crackdown on any wrongdoing. The local share price index futures YAPcm1 fell 0.3%, a 16.2-point discount to the underlying S&P/ASX 200 index .AXJO close. The benchmark rose 0.3% on Monday.

Australia on Tuesday urged China to clarify the reports, which it said would breach international trade rules if true. Coal is the third biggest export from Australia, which has been embroiled in a worsening diplomatic dispute with its largest trading partner China. Beijing has imposed a series of trade reprisals after Canberra called for an international inquiry into the source of the coronavirus. Australia’s prime minister said a shift by China away from Australian coal imports would be “a bad outcome for the environment”. “It really is a lose-lose here because Australian coal, compared to that coal that is sourced from other countries, the other countries have 50% higher emissions than Australian coal,” Morrison told media on Tuesday.

China’s first-tier economic data released Monday painted a mixed picture of the world’s second-largest economy. As represented by Retail Sales, China’s consumer spending rose 5% year-on-year in November versus 5.2% expected and 4.3% previous. Industrial Production rose versus 7% as expected, following October’s 5.9%.

While the uptick in the factory output is good news for the commodity-sensitive AUD, so far, the currency pair has struggled to gather upside traction. That’s possibly because markets are forward-looking and might be worried about rising prospects of the economically-painful hard coronavirus lockdowns across the advanced world. Besides, the weak Retail Sales number weakens the China economic rebound story.

The Reserve Bank of Australia’s December meeting minutes released early Tuesday showed policymakers stood ready to boost stimulus if required. The dovish tone, however, failed to move the Aussie dollar. RBA’s Kearns was out on the wires, stating that Australia’s banks are better prepared than they were during the 2008 crash.

AUD/USD 4 Hours Chart:

Support: 0.7512 (S1), 0.7491 (S2), 0.7458 (S3).

Resistance: 0.7566 (R1), 0.7599 (R2), 0.7620 (R3).

Amidst all the catalysts creating pressure on the Aussie, we expect a bearish trend for AUD/USD.

Dollar will get weaker in near future – Morgan Stanley

Morgan Stanley analysts foresee 2021 as one more big year for liquidity injection and asset price inflation. “On our projections, G10 central banks will inject another US$2.8 trillion of liquidity next year – just in their government bond purchases. That’s more than twice the amount of liquidity central banks injected in any year prior to the one drawing to a close,” Morgan Stanley analysts said.

As such, the dollar could see a continued sell-off in the coming year 2021. The US dollar has further to fall against a host of G10 and emerging market currencies next year, and the safest investment of all – US Treasuries – will struggle to make ends meet,” the investment bank said.

Macro factors such as coronavirus vaccine optimism, expectations for a global economic recovery in 2021, the fading influence of trade protectionism, economic nationalism, and the European Union’s recent agreement on the 2021 budget favor further gains in the EUR. The dollar side of the story looks weak as well, as noted by Morgan Stanley which is noted above.

On the other hand, European Commission President Ursula von der Leyen said Sunday that Brexit trade talks with the U.K. will be extended beyond Sunday’s deadline, adding that “we think it is responsible at this point to go the extra mile.” Von der Leyen spoke with British Prime Minister Boris Johnson via telephone on Sunday before releasing a joint statement. Both have now mandated their negotiating teams to continue their work.

Media reports from the U.K. suggested there had been some progress in talks in recent days, despite the lack of a breakthrough. No new deadline for the discussions was set by the EU and U.K. leaders.

However, Germany’s decision to impose a hard lockdown during the Christmas holidays and potential weak PMIs could play impact negatively in the short-term. The Eurozone, German PMI numbers are scheduled for release this week which can change the trend.

EUR/USD 4 Hour Chart:

Support: 1.2090 (S1), 1.2069 (S2), 1.2032 (S3).

Resistance: 1.2147 (R1), 1.2184 (R2), 1.2205 (R3).

In the current prevailing atmosphere which is in favor of Euro against the dollar, we expect a bullish trend for EUR/USD.

EUR/USD Weekly Forecast (14th December 2020 – 18th December 2020)

Fundamental view:

The Euro has gone back and forth during the course of the week and ended weaker against greenback in the end of the week. One of the biggest sticking points of the last week is the fact that the stimulus talks in America are going on forever, and it seems as if there is plenty of contentious behavior between McConnell and Pelosi, as well as many other members. The stimulus package has been getting smaller over time.

In the past week, Europe German Industrial Production m/m & Sentix Investor Confidence on 7th Dec and Europe French Industrial Production on 10th Dec created bullish trend for the pair whereas Europe Revised GDP quarterly report & US Revised Nonfarm Productivity quarterly report on 8th Dec and Europe German Trade Balance on 9th Dec created bearish trend for the pair.

The major economic events deciding the movement of the pair in the next week are Euro Markit Manufacturing PMI, US Retail Sales monthly report, Fed Interest Rate Decision at Dec 16, US Building Permits, Euro Core CPI monthly report and US Initial Jobless Claims at Dec 17.

EUR/USD Weekly outlook:

Technical View:

Last week’s high was 0.09% lower than the previous week. Maintaining high at 1.2166 and low at 1.2058 showed a movement of 108 pips.

In the upcoming week we expect EUR/USD to show a bearish trend. The currency pair is trading above the 200 Simple Moving Average and the MACD trades to the downside. A solid breakout below 1.2061 may open a clean path towards 1.2006 and may take a way down to 1.1954. Should 1.2169 prove to be unreliable resistance, the EURUSD may raise upwards 1.2221 and 1.2276 respectively. Chart formation of a bearish shark pattern in H4 chart sets prospects for a bearish trend. Bearish engulfing formation in H4 chart escalates the expectation for a bearish trend.

Preference
Sell: 1.2121 target at 1.2007 and stop loss at 1.2174

 

Alternate Scenario
Buy:  1.2174 target at 1.2275 and stop loss at 1.2121