The first rule requires you to have the patience until the Nr4 pattern develops on the chart. When we have a daily trading range that is narrowed than the previous trading ranges it means that the price is contracting.
Based on our backtesting results we have found out that there is a high probability of a trend move after you spot this type of contraction. This is kind of a general rule because the markets do move from periods of contractions to periods of expansion.
This is the reason why this short-term price pattern is so powerful.
Note* The 4th day doesn’t necessarily need to be an inside day, it only needs to have its daily range smaller than the previous 3 days.
Step #2: Mark the High and the Low of the 4th day and switch to the 1 hour time frame
Our trade is taken the next day after the Nr4 pattern showed up. In order to have a clear view of the short-term price action we need to switch our focus to the 1 hour time frame. Before you switch the time frames make sure you mark on your chart the high and the low of the 4th day.
The short-term pattern Nr4 satisfies all the requirements for a valid setup
Step #3: How to buy: Buy only if the breakout of the Nr4 high happens during the first 5 trading hours.
We use the Opening Range Breakout technique to time the market and have an effective trade entry. The ORB is even more profitable if it occurs after inside days that have a smaller trading range than the previous 3 days. Here is another strategy called simple yet profitable strategy.
Our trade doesn’t may not have an inside day, but nevertheless we want to buy only after we break above the Nr4 day high. Also, we want to make sure the breakout happens during the first five trading hours of the next day.
Trades based on the ORB – Nr4 pattern will show you a profit instantly.
Now, if the trade is not showing you a profit right away than your trade becomes more vulnerable. As a general rule, if after the first trading hour your trade is not in the green, you can safely close the trade at the market.
Of course, you can only do that if your stop loss hasn’t been triggered in the meantime.
Step #4: Place your protective Stop Loss below the Nr4 day low
You can hide your protective stop loss below the Nr4 day low. Alternatively, you can also place your stop loss below the current day low as this will give you a better risk to reward ratio.
The ORB - Nr4 pattern tends to precede strong trend day activity, so your stop loss should be rarely hit. Both of these patterns can be traded individually, but when combined they tend to produce even more powerful trades.
Step #5: Take profit at the close of the first 1-hour candle
Our take profit strategy is fairly easy and it’s slightly modified from the original strategy highlighted in the “Day Trading with Short Term Price Patterns and Opening Range Breakout” book written by Toby Crabel.
Even though the ORB pattern tends to lead to trend trading days we’re more conservative and want to quickly take profits. So as soon as the first candle shows up we close the trade and enjoy our daytrade profits.
Alternatively, you can keep the trade open until the end of the day if you want to extrapolate more profits from the cryptocurrency market.
Note** the above was an example of a BUY trade using our Dogecoin cryptocurrency strategy. Use the same rules for a SELL trade – but in reverse.
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