I have been trading cryptocurrency for 10 years, struggled for 4 years, and realized one thing: trading cryptocurrency is simply repetition. When you reach the top of the mountain, you will suddenly understand. Today, without reservation, I share the moving average strategy with those climbing the mountain below. I hope all the practical insights below will help you understand the truth and essence of trading!

I've been trading cryptocurrency for 10 years, struggled for 4 years, and realized one thing: trading cryptocurrency is simply a repetition. When you reach the top of the mountain, you will suddenly understand. Today, without reservation, I share the moving average strategy with those climbing the mountain below. I hope all the practical insights below will help you understand the truth and essence of trading!

In addition to solid moving average techniques, I also strictly follow these eight iron rules:

1. Don't rush to get in: Hearing others making money may make you anxious, but don’t rush in blindly. You need to learn some basics first, understand how cryptocurrency trading works, and then consider investing your money.

2. Be careful not to chase highs and lows: Don't follow the crowd blindly; don’t buy just because others are buying. By the time you realize someone has bought, it might be too late. It’s better to wait patiently for a good opportunity.

3. Don't put all your eggs in one basket: Diversify your investments; buy several different ones to spread the risk.

4. Set a bottom line for yourself: Think about how much loss you can tolerate. Don't throw all your money in for a gamble. Set a stop loss point, and when the loss reaches a certain extent, stop immediately to protect your capital.

5. Learn more, don't mess around: Learn more about cryptocurrency, such as checking the basics of a certain coin and listening to what professional players say. Don't just listen to unreliable rumors and gossip.

6. Don't be too greedy: Seeing that you've made some money, don't think about making more; you might end up with nothing at all. Take some profits out in time; don’t always think about making more.

7. Don't let emotions lead you: The market is volatile; don't get anxious and sell just because others are in a rush. Likewise, don't blindly follow others just because they are buying.

8. Time is your friend: Don't rush, time will help you. Don't think about getting rich all at once; be patient, take it slow, and earn money steadily. The eight principles above are mistakes I made repeatedly, and now I share them with everyone. Please study them seriously, practice continuously, and achieve unity of knowledge and action. I hope to help cryptocurrency enthusiasts avoid a few years of detours.

There is the dumbest method for trading cryptocurrency that allows you to maintain 'eternal profit'; make it 30 million! This method has achieved an 80% win rate! Key indicators you must know for trading cryptocurrency [Moving Averages + Narrow Range Resonance Strategy] have skyrocketed the win rate by 300%!

Many price action traders are familiar with various candlestick patterns; however, few understand the application of narrow range candlesticks. Narrow range candlesticks can provide insight into future price behavior, making them important price action signals to study alongside candlestick patterns.

We will study three types of narrow range (NR) candlestick patterns. This includes NR4 candlesticks, NR7 candlesticks, and NR4/ID candlesticks. All three patterns can provide reliable trading opportunities as they help us capture the next most likely price movement after a consolidation period.

Introduction to Narrow Range Candlesticks

The concept of 'narrow range candlesticks' was promoted by Toby Crabel, known as the 'most famous counter-trend trader,' in his outstanding book (Day Trading: Short-Term Price Patterns and Opening Range Breakout).

Several other commodity traders have also expanded on the concepts he originally discussed in his book. Among the more famous authors are Linda Bradford Raschke and Lawrence Connors, who co-authored (Street Smarts: High Probability Short Term Trading Strategies).

Essentially, the idea behind narrow range candlesticks is that trends or multi-day trends typically emerge after a contraction period, which can be easily observed and quantified on price charts.

Although the original concept of narrow range candlesticks was applied to intraday trading strategies, I find their application in swing trading equally useful.

The narrow range candlestick strategy is a simple breakout strategy that enters long positions at predefined highs and short positions at predefined lows. These predefined levels are typically the highs and lows of the narrow range candlestick patterns. The greatest advantage of this strategy is its simplicity.

Although executing narrow range candlestick breakouts is straightforward, they remain highly effective patterns when traded correctly.

The three main variants of the narrow range candlestick breakout strategy are the NR4 breakout, which breaks from the narrowest candlestick of the last four days. The second variant is the NR4/ID setup, which involves breaking from the narrowest range candlestick of the last four days, which is also an inside day candlestick.

The last variant of the strategy is the NR7 breakout, which essentially works the same as the NR4 breakout, but in the case of NR7, we look for breakouts from the narrowest range candlestick over the last seven days.

In addition to different narrow range patterns, traders can further filter setups in various ways to achieve the best results. A common filter used with narrow range candlestick setups is the trend filter.

The trend filter only allows trades that align with the long-term trend and the direction of the narrow breakout. One of the more effective trend filters that can be used in conjunction with this strategy is the moving average.

We will take a closer look at three different variants on the price chart and discuss a method for filtering and trading these narrow range candlestick setups.

Trading NR4 Candlestick

A narrow range 4 (NR4 candlestick) is the narrowest range candlestick of the last four trading days. Therefore, the NR4 pattern consists of a total of four candlesticks. The range of the fourth candlestick or the last candlestick will be smaller than the range of each of the previous three candlesticks. Let's take a look at how the NR4 pattern performs on the price chart.

In the chart above, you can see the price action of the last four candlesticks marked. If you observe closely, you will see that the last candlestick, which is the fourth candlestick, has a range smaller than the previous three (candlesticks 1 to 3). Therefore, the fourth candlestick forms an NR4 candlestick and verifies this pattern.

The process of looking for NR4 setups is quite simple. First, you need to check the high and low data of each of the last four candlesticks. This will allow you to calculate the high-low range of each candlestick.

Then, you will compare today's range with the range of each of the last three candlesticks. If you find that today's range is smaller than the range of each of the three candlesticks from the previous days, then this pattern can be marked as an NR4 structure.

With today's computing technology, writing scripts and automating this process is quite easy. Alternatively, you can access some free pre-programmed narrow range indicators to carry out this task.

In any case, once you identify the NR4 pattern on the price chart, you can take the next step to further assess and consider trading that setup. At the most basic level, when the price breaks above the high of the NR4 candlestick, a signal to enter a bullish trade appears. Conversely, when the price breaks below the low of the NR4 candlestick, a signal to enter a bearish trade appears.

NR4 Candlestick Trading Example

We will create a simple strategy to trade NR4 setups. The rules are as follows:

NR4 Candlestick Setup Rules - (Using Daily Chart Time Frame)

Bullish NR4 Trading Setup Rules

· The candlestick after the NR4 candlestick must break above the high of the NR4 candlestick.

· At the breakout, the price must be above the 89-period simple moving average.

· The buying price should be 1 point above the high of the NR4 candlestick.

· Set the stop loss 1 point below the low of the NR4 candlestick.

· Exit the trade at the close of the third candlestick after the breakout.

Bearish NR4 Trading Setup Rules

· The candlestick after the NR4 candlestick must break below the low of the NR4 candlestick.

At the breakout, the price must be below the 89-period simple moving average.

· Sell 1 point below the low of the NR4 candlestick.

· Set the stop loss 1 point above the high of the NR4 candlestick.

· Exit the trade at the close of the third candlestick after the breakout.

Now that we have the rules for trading NR4 setups, let’s take a look at the price chart and apply this strategy. The following chart is a daily chart of the GBP/USD currency pair. You can see five arrows pointing to specific blue candlesticks. These blue candlesticks represent the NR4 candlesticks. The light blue line on the chart is the 89-period simple moving average.

Now let's analyze the five NR4 trading signals that occurred on this price chart. Starting from the left, the first signal occurs when the NR4 candlestick is broken. We will exit the position at the close of the third candlestick after the breakout, resulting in a profitable trade.

The second signal occurs shortly after the price breaks above the 89-period simple moving average. Here, we will wait for the price to break above the high of the NR4 candlestick. We can see this happening in the subsequent candlestick, which gives us a bullish signal. We will exit the position at the close of the third candlestick after the breakout, which will happen when the shooting star pattern that forms the swing high is created.

The third NR4 trading signal occurs after a brief pullback. Note that the candlestick following this NR4 candlestick broke the high and closed near the top of its range. The stop loss will be set at the low of the NR4 candlestick, which was never threatened. The exit will be triggered on the third day after the breakout, occurring on the day the candlestick itself is the NR4 candle. This is indicated by the fourth arrow on the chart.

The last NR4 trading setup occurs when the price is far above the 89-period simple moving average. You can see the price breaking the high of this NR4 candlestick and continuing to rise over the next few days. The closing price of the last candlestick on the chart represents the exit point.

Trading NR4/ID Candlestick

The structure of the NR4/ID candlestick is similar to that of the NR4 candlestick but adds a condition that the last candlestick (the fourth candlestick) must also be an inside bar. An inside bar is defined as having its high and low range contained within the range of the previous candlestick. Therefore, when the high and low range of the fourth candlestick in the NR4 candlestick structure falls within the range of the third candlestick in the structure, this narrow inside bar setup occurs.

Here are examples of NR4/ID candlestick patterns:

As shown in the figure, the range of the fourth candlestick is smaller than the range of each of the previous three candlesticks (candlesticks 1-3). Therefore, the fourth candlestick is considered an NR4 candlestick. Additionally, the fourth candlestick is also contained within the range of the third candlestick. More specifically, the high of the fourth candlestick is below the high of the third candlestick, and the low of the fourth candlestick is above the low of the third candlestick. Therefore, we can say that the fourth candlestick is an inside bar pattern. Thus, this structure is both an NR4 candlestick and an inside bar, making it an NR4/ID candlestick structure.

The process of finding NR4/ID candlestick structures is similar to that of finding NR4 candlestick structures, but with a significant additional condition. This condition is that the fourth candlestick must also be an inside bar.

The basic signal for entering a bullish trade in the NR4/ID setup is when the price breaks above the high of the NR4/ID candlestick. Conversely, the signal for entering a bearish trade is when the price breaks below the low of the NR4/ID candlestick.

NR4/ID Candlestick Trading Example

Here are the simple rules for trading NR4/ID candlestick setups:

NR4/ID Candlestick Setup Rules - (Using Daily Chart Time Frame)

Bullish NR4/ID Trading Setup Rules

· The candlestick after the NR4/ID candlestick must break above the high of the NR4/ID candlestick.

· At the breakout, the price must be above the 89-period simple moving average.

· Buy 1 point above the high of the NR4/ID candlestick.

· Set the stop loss 1 point below the low of the outside bar (the candlestick immediately preceding the NR4/ID candlestick).

· Exit the trade at the close of the sixth candlestick after the breakout. Short Selling NR4/ID Trading Setup Rules

· The candlestick after the NR4/ID candlestick must break below the low of the NR4/ID candlestick.

· At the breakout, the price must be below the 89-period simple moving average.

· Sell 1 point below the low of the NR4/ID candlestick.

· Set the stop loss 1 point above the high of the outside bar (the candlestick immediately preceding the NR4/ID candlestick).

· Exit the trade at the close of the sixth candlestick after the breakout.

Now let's turn our attention to the following chart, which illustrates how to trade this intraday strategy based on the rules mentioned above. The chart is a daily chart of the USD/CHF currency pair. Each of the six blue arrows points to an NR4/ID candlestick. You will notice that the NR4/ID candlesticks on this chart are filled as black candles. The light blue line representing price action slopes downward and corresponds to the 89-period simple moving average.

Trading NR7 Candlestick

A narrow range 7 candlestick (NR7 candlestick) is the narrowest range candlestick of the last seven trading days. Thus, the NR7 pattern consists of a total of seven candlesticks. The range of the seventh candlestick or the last candlestick will be smaller than the range of each of the previous seven candlesticks. Let's take a look at how the NR7 candlestick pattern performs on the price chart.

In this chart example, you will notice that the last seven candlesticks' price action is circled. Notice that the last candlestick (the seventh candlestick) has a narrower range than the previous six. Simply put, the high and low range of the seventh candlestick is smaller than each of the candlesticks numbered 1 to 6.

Therefore, the seventh candlestick can be marked as an NR7 candlestick and confirm this pattern. Similar to the process of looking for the NR4 pattern, we will also follow the same steps to find the NR7 pattern, but with one exception. When assessing the NR7 pattern, we will look back at the high and low data points of a total of seven candlesticks, rather than just confirming the last four.

As for the entry signal, the NR7 trading setup works the same way as the NR4 setup. That is, a bullish signal occurs when the price breaks above the high of the NR7 candlestick. A bearish signal occurs when the price drops below the low of the NR7 candlestick.

At this point, you might wonder what the actual difference is between trading NR7 and NR4 setups, and why we might choose one over the other. Clearly, since the requirements for NR4 candlesticks are more lenient than those for NR7 candlesticks, you will see more NR4 setups than NR7 setups.

The NR7 candlestick requires a higher degree of compression in price action than the NR4 candlestick. Therefore, we typically see more significant breakouts following NR7 candlesticks than following NR4 candlesticks. While this is not always the case, it holds true in most situations.

NR7 Candlestick Trading Example

Here are the rules for trading NR7 candlestick setups:

NR7 Candlestick Setup Rules - (Using Daily Chart Time Frame)

Bullish NR7 Trading Setup Rules · The candlestick after the NR7 candlestick must break above the high of the NR7 candlestick.

· At the breakout, the price must be above the 89-period simple moving average.

· Buy 1 point above the high of the NR7 candlestick.

· Set the stop loss 1 point below the low of the NR7 candlestick. · Exit the trade at the close of the sixth candlestick after the breakout.

Short Selling NR7 Trading Setup Rules

· The candlestick after the NR7 candlestick must break below the low of the NR7 candlestick.

· At the breakout, the price must be below the 89-period simple moving average.

· Sell 1 point below the low of the NR7 candlestick.

· Set the stop loss 1 point above the high of the NR7 candlestick. Exit the trade at the close of the sixth candlestick after the breakout.

Now that we understand the rules for trading NR7 candlestick setups, let's look at some practical examples. The following chart shows the daily chart of the USD/CAD currency pair. There are a total of six signals on this chart, with the yellow candlestick representing the actual NR7 candlestick. The light blue line at the bottom of the chart represents the 89-period simple moving average, which is our trend filter.

Starting from the left, we can see that the first NR7 candlestick setup will issue a bullish entry signal on the subsequent candlestick. This will lead to a stop loss being triggered as the low point of the NR7 candlestick is hit shortly after the entry.

Next is the second NR7 candlestick setup, where we will look for a bearish entry signal after the NR7 candlestick. The subsequent candlestick experienced a breakout that allowed us to enter a bearish position here. Similarly, this trade resulted in a loss as the price eventually broke through the NR7 candle, triggering our stop loss. This occurred when the price moved from below to above the 89-period simple moving average.

We can see that the third NR7 setup occurs shortly after the price breaks above the 89-period simple moving average. A bullish entry signal is triggered when the subsequent price breaks above the high of the NR7 candlestick. We will set the stop loss below the low of the NR7 candlestick. The exit will be triggered at the close of the sixth candlestick after the breakout, which can be seen forming a shooting star candlestick pattern before the strong green candlestick.

The fourth NR7 candlestick setup appears the day after the strong green candlestick mentioned above. Interestingly, the candlestick that breaks the high of this NR7 candlestick eventually also forms an NR7 candlestick itself. However, at this point, we are already in a bullish trade and will continue to hold the position until an exit signal appears, ultimately resulting in a profitable trade.

The last NR7 candlestick pattern is well above the 89-period simple moving average. We can see that the price breaks upward the next day, triggering our buy entry order. The exit will be triggered at the close of the sixth candlestick after the breakout, as indicated by the last green candlestick on this price chart.

Summary

You should now have a good understanding of volatility contraction and expansion in the market. We have shown you three different candlestick patterns that can help you look for consolidation periods in the market that may lead to short-term price trends.

You can incorporate narrow range candlesticks into your trading in many different ways. We have outlined some simple concepts for trading narrow range candlesticks, which should serve as a good starting point for expanding these ideas and incorporating them into an overall trading plan.

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