R&D Blog
Toby Crabel – 2-Bar NR Pattern | Trading Strategy (Exits)
I. Trading Strategy
Developer: Toby Crabel (2-Bar NR Pattern). Source: Crabel, T. (1990). Day Trading with Short Term Price Patterns and Opening Range Breakout. Greenville: Traders Press, Inc. Concept: Volatility expansion. Research Goal: Performance verification of the Narrow Range (NR) pattern with different exits. Specification: Table 1. Results: Figure 1-2. Trade Setup: Toby Crabel – 2-Bar NR pattern is defined as the narrowest range from high to low of any two day period relative to any two day period within the previous 20 market days. Trade Entry: Opening Range Breakout (ORB). A trade is taken at a predetermined amount above/below the open. The predetermined amount is called the stretch. Long Trades: A buy stop is placed at [Open + Stretch]. Short Trades: A sell stop is placed at [Open − Stretch]. The first stop that is traded is the position. The other stop is the protective stop. Trade Exit: Table 1. Notes: T. Crabel: “The idea behind this pattern originated from Wyckoff’s Last point of Supply or Last point of Support. These were described by Wyckoff as periods of price action that displayed unusually narrow ranges and low volume. They occurred just after a period of accumulation or distribution and just before a mark up/mark down phase.” Source: Crabel, T. (1990). Day Trading With Short Term Price Patterns and Opening Range Breakout, pp. 167. Greenville: Traders Press, Inc. Portfolio: 42 futures markets from four major market sectors (commodities, currencies, interest rates, and equity indexes). Data: 33 years since 1980. Testing Platform: MATLAB®.
II. Sensitivity Test
All 3-D charts are followed by 2-D contour charts for Profit Factor, Sharpe Ratio, Ulcer Performance Index, CAGR, Maximum Drawdown, Percent Profitable Trades, and Avg. Win / Avg. Loss Ratio. The final picture shows sensitivity of Equity Curve.
Tested Variables: Target_Index & Time_Index (Definitions: Table 1):
Figure 1 | Portfolio Performance (Inputs: Table 1; Commission & Slippage: $0).
| STRATEGY | SPECIFICATION | PARAMETERS |
| Auxiliary Variables: | Noise: The difference between the open for each day and the closest extreme to the open on each day (Noise[i] = min(High[i] − Open[i], Open[i] − Low[i])). Average_Noise: The simple moving average of Noise over a period of Stretch_Length. Stretch[i] = Average_Noise[i] * Stretch_Multiple. Index: i ~ Current Bar. | Stretch_Length = 10; Stretch_Multiple = 2; |
| Setup: | Toby Crabel – 2-Bar Narrow Range (NR) pattern is defined as the narrowest range from high to low of any two day period relative to any two day period within the previous 20 market days (Look_Back). | NR_Size = 2; Look_Back = 20; |
| Filter: | N/A | |
| Entry: | Opening Range Breakout (ORB). A trade is taken at a predetermined amount above/below the open. The predetermined amount is called the stretch (defined above). Long Trades: A buy stop is placed at [Open + Stretch]. Short Trades: A sell stop is placed at [Open − Stretch]. The first stop that is traded is the position. The other stop is the protective stop. If both stops are triggered during the same day, we account only for one entry and one exit (no reversals) and assume the trade was a loser. | |
| Exit: | Time Exit: nth day at the close, n = Time_Index. Stretch Exit: Long Trades: A sell stop is placed at [Open − Stretch]. Short Trades: A buy stop is placed at [Open + Stretch]. The values are calculated at the day of entry. Target Exit: Long Trades: A sell at the close is placed if High ≥ [Entry + $Target]. Short Trades: A buy at the close is placed if Low ≤ [Entry − $Target]. $Target is the multiple of the initial risk per trade (defined by exits) and Target_Index. Stop Loss Exit: ATR(ATR_Length) is the Average True Range over a period of ATR_Length. ATR_Stop is a multiple of ATR(ATR_Length). Long Trades: A sell stop is placed at [Entry − ATR(ATR_Length) * ATR_Stop]. Short Trades: A buy stop is placed at [Entry + ATR(ATR_Length) * ATR_Stop]. | Time_Index = [1, 40], Step = 1; Target_Index = [1.0, 10.0], Step = 0.25; ATR_Length = 20; ATR_Stop = 6; |
| Sensitivity Test: | Time_Index = [1, 40], Step = 1 Target_Index = [1.0, 10.0], Step = 0.25 | |
| Position Sizing: | Initial_Capital = $1,000,000 Fixed_Fractional = 1% Portfolio = 42 US Futures ATR_Stop = 6 (ATR ~ Average True Range) ATR_Length = 20 | |
| Data: | 42 futures markets; 33 years (1980/01/01−2013/02/28) |
Table 1 | Specification: Trading Strategy.
III. Sensitivity Test with Commission & Slippage
Tested Variables: Target_Index & Time_Index (Definitions: Table 1):
Figure 2 | Portfolio Performance (Inputs: Table 1; Commission & Slippage: $50 Round Turn).
IV. Rating: Toby Crabel – 2-Bar NR Pattern | Trading Strategy
A/B/C/D
Related Entries: Opening Range Breakout (Exits) | 2-Bar Narrow Range Pattern (Setup & Exit) | Narrow Range N-Day Pattern (Setup) | NR7 Pattern (Setup & Exit)
Related Topics: (Public) Trading Strategies
CFTC RULE 4.41: HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.
RISK DISCLOSURE: U.S. GOVERNMENT REQUIRED DISCLAIMER | CFTC RULE 4.41
Codes: matlab/crabel/2bar-nr/