17/07/2014 How to Pick Intraday Market Direction The 80% Rule

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INO.com Traders Blog
Expert Charts, Trading Tips and Technical Analysis from INO.com
How to Pick Intraday Market Direction The 80% Rule
December 29, 2011 By Jeremy Lutz
If you follow our blog, then you are definitely familiar with trader Larry Levin,
President of Trading Advantage LLC. We have gotten such a great response from some of his past posts that he
has agreed to share one more of his favorite trading tips as a special treat to our viewers. Determining the
direction of the market can be tricky and just plain confusing at times, but Larrys expert opinion keeps it simple.
If you like this article, Larrys also agreed to give you free access to his Double Stop trading technique.
Let me introduce you to one simple technique I've used to pick intraday market direction with 80% accuracy.
Would you like to know if a particular trade has an 80% probability of working? Would you like to know exactly
where to enter that trade, and where to exit? Would you like to trade this technique with a 2 point stop loss or
less?
It Doesn't Matter if the Market is Going Up or Down, This Simple-to-Learn Method Has a Historical
Accuracy of 80 Percent!
Using just two key numbers each day, floor traders and other professionals can try to pick the direction, entry
price, stop loss and target price of a particular trade. It doesn't matter if the market is going up or down - this
simple to learn method has a historical accuracy of 80%. In fact it's called the 80% Rule.
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STRONG
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17/07/2014 How to Pick Intraday Market Direction The 80% Rule
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Each morning you will know what those two key numbers are. Then, if the set up is correct, simply enter the
trade, set your stops, set your target price and sit back with a trade that has an 80% expectancy of hitting the
target. What could be easier?
Here are the basics for the 80% Rule:
The Value Area (Secret Tip #12): The range of prices where 70% of yesterday's volume took place. For instance,
if the value area in the S&Ps is 138500-139000, then 70% of the previous day's volume took place between the
prices of 138500-139000.
The 80% Rule: When the market opens above or below the value area, and then gets in the value area for two
consecutive half-hour periods. The market then has an 80% chance of filling the value area.
The value area and the 80% rule can be excellent tools for judging potential market direction. Many traders
familiar with the value area and the techniques that go along with it use it to help them decide what trades to do
each day.
A couple of key points to remember:
If the market opens above the value area, try to enter a short position as close as possible to the top of the value
area.
Conversely, if the market opens below the value area, aim to enter any long position as close as possible to the
bottom of the value area.
Once you get used to it, you will find that using the value area each day will be valuable in your
trading. (Pun intended!)
The 80% rule is a simple way to ride the market as it potentially fills the value area. However, there is an
17/07/2014 How to Pick Intraday Market Direction The 80% Rule
www.ino.com/blog/2011/12/how-to-pick-intraday-market-direction--the-80-rule/#.U8eztdKBnJc 3/7
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exception to be alert for. If it the market opens above the value area and then goes above or below it, the 80%
rule can still come into play. Watch for it to get back into the value area for those important two consecutive
brackets or 30-minute bars.
Click here to see Larrys Double Stop trading technique.
Best Trades to you,
Larry Levin
Founder & President- Trading Advantage
Disclaimer: Trading in futures and options involves a substantial degree of a risk of loss and is not suitable for all
investors. Past performance is not necessarily indicative of future results.
Fi l ed Under: Guest Bl oggers Tagged Wi th: Larry Levi n, market di recti on, MarketCl ub Techni ques, techni que, Ti ps & Tal k, Tradi ng
Advantage, trends
Comments
Chuck says:
January 2, 2012 at 4:14 am
Hi , for those who don't know me as I am know on many financial sites , I think short term trading is the way to
go . However to do short term trading you need help . First , you are tied to the computer . Second , your mind
has to be clear . Third you have to sure of your method and not give a second thought to what you are doing . As
to prediction of price movements . Looking at the remarks here most of the members are into lots of lagging
indicators that track price or confirm a movement . Personally I don't like being late for anything . These method
by defination are late . As to value areas , this method , seems ok if the markets have a gravity to this areas . It
seems , although I am not sure of this
that you take a short postion against the value area if the market opens above this area , and you use the stop
out as the border of the area on the top once the price enter the area and wait 1/2 hour , not sure from the time
the market moves down or from the time the top is reached ( first top ) who knows .
To be honest with you all if you actually can trade this for 80% correct moves
I would be very surprised . It is too iffy for what I read . The close out for profit move with be after the 1/2 hour . I
still am not sure of when this 1/2 hour starts so I don't know where it ends .
Show me Gann traders and market mappers and show me turning points in advance .
Yes , I have an answer for all of this , but do i need help to automate it .
Chuck says:
January 2, 2012 at 3:42 am
How do you get volume to figure out the value zone . The point that this at best could be very time consuming
unless you have software that computes this .
Iguess you can guess this with a scattergram chart with vol on the y axis and price on the x axis . only the x
axis has to be adjusted for vol time the number of share or contracts . Obviously this requires programming and
is possible but if you don't have a programmer who works cheap you are out
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John Egan says:
January 1, 2012 at 10:19 pm
Wouldn't worry about overnight as it should have considerably less volume anyway.
dennis king says:
January 1, 2012 at 12:53 pm
The VA is based on normal trading hours, not on overnight trading.
Levin recommends going long or short as close to the extremity of the VA as possible with a 1-2 point stop. This
does not work too well for low volume trading like over the holidays, but it worked fairly well on 12/30. VA was
1257/1250.50 basis the March E-Mini. In the morning it traded within the VA meeting criteria at the 10 AM bar,
but rallied back to 1259.00 stopping out a short at 1257.00. It then continued to meet the criteria, and traded
down to 1252.50 between 1:30-2:00 PM, but then rallied to 1256.25 before trading as low as 1251.25 near the
close.
Target price can be the other extreme of the VA, but can go lower/higher. Pivot points and SP500
support/resistance levels can also be utilized to judge target area. Best to use a break even or better stop on the
second contract after taking profits at an interim target on the first contract. Try for a 2.5-3.0 risk/reward ratio
basis a 1 point stop on the first contract. Anyway, that is how I think of it, but perhaps others do it differently.
Andrew says:
January 1, 2012 at 10:27 am
Interesting....
Are the target price and the stop loss points the extremities of the value zone?
I use Interactive Brokers, which provides real time and very low commissions. Using the e-mini is the value zone
determined based on the full day trading (including overnight action)? or just on the non outside normal trading
hours?
dennis king says:
December 31, 2011 at 11:32 pm
me too, thanks
marc says:
December 31, 2011 at 8:35 pm
Thanks, John. I have TOS so I will check it out to see how helpful it might be.
John Egan says:
December 31, 2011 at 5:37 pm
LOL! .. Months ago I checked out this system and had the very same question.. Sure..If I took time and sales
17/07/2014 How to Pick Intraday Market Direction The 80% Rule
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from yesterday and ran them thru a spreadsheet I guess I could massage the numbers and come up with the
'value area' ..But I trade a variety of stocks and it was completely impractical.
I have been playing with 'Volume By Price' which is available on StockCharts.com as an upper indicator.
Unfortunately their charts only show daily or weekly, so although you can check for 'headroom' or 'vacuums' in
the volume at certain prices, you can't see those areas on say a 5 minute chart, so it would not work for this
system.
However, ThinkOrSwim offers their platform for free and they do implement 'VolumeProfile' as one of their studies.
Apply it for any chart on the 1 minute timeframe and you get a top and bottom of the value area and a 'POC'
which pretty much corresponds to the most actively traded timeframe. Pretty easy to see.
Luck! jegan
dennis king says:
December 31, 2011 at 3:44 pm
if you have real time quotes with the volume traded at each price on the E-Mini, you can do those calculations,
but I don't. Fortunately, Barry Levin publishes those numbers in his daily pre market newsletter which anyone can
sign up for. He and his traders also have webinars and provide a training program. They evidently have up to 12
techniques they use. I use the pivot points, the 80% rule, one time framing, and 'reading the tape' using the MAC-
D, slow stochastics, and W%R on the 30, 10 and 5 minute charts to trade the SPY call and put options. You
have to extrapolate a bit as Marketclub provides 20 minute delayed quotes, but I also have IRA accounts with
Fidelity so have access to real time quotes from them. With my HP laptop, I do alright. I am retired so I don't
have a day job. I would not advise doing it unless you are able to do it full time. However, these techniques have
provided me with some excellent position trades, and one advantage of using the options is 'staying power' so
that there is the option of carrying a position overnight or longer, something one probably would not want to do
with the E-Mini with the overnight swings.
marc says:
December 30, 2011 at 5:13 pm
Dennis, how do you determine the price area where 70% of the prev days volume occurred?
dennis king says:
December 30, 2011 at 4:33 pm
the 80% rule is based on the E-Mini. The value area is the price area where 70% of the previous days volume
occurred. It is a killer indicator for trading the E-Mini with low risk entry points. One needs real time prices for
best use. The POC (point of control) is in the value area at the price where the highest volume took place and
acts as a pivot.
LanceJ says:
December 30, 2011 at 10:34 am
Here's what I think would be awesome. If this was really accurate 80% of the time, if Market Club could add this
to the Smart Scan area for members say right under Strong DMA something that said 80% Rule. It would then
scan and return all stocks that were buy signals on the 80% rule.
17/07/2014 How to Pick Intraday Market Direction The 80% Rule
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I mean think about. If it really was right 80% of the time, this would be extremely valuable not only for members,
but for Market Club as well. Imagine the killer marketing you could do for a system that was right 80% of the
time. It could supplement the trade triangles technology nicely as they tend to become less useful in trading
markets like the kind we've been in. In a trading market, you just switch over to the 80% Rule Smart Scan.
dp says:
December 29, 2011 at 7:20 pm
is the value area simply the previous day high/low range
Schuyler Hales says:
December 29, 2011 at 4:54 pm
need secret tip #12............please inform how to obtain this
RCM says:
December 29, 2011 at 3:56 pm
A very interesting tip. but as MrGice noted, it would be a lot more useful if MarketClub would outline as well the
process for determining the figures you are working with. Please respond.
rcm
MrGice says:
December 29, 2011 at 1:15 pm
How is the "Value Area" determined and can this be applied to oil?
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