The 80% Rule - A Popular Strategy
A very popular strategy in Market Profile is the 80% rule: It was first mentioned in The Profile Reports (by Dalton Capital Management 1987-1991).
The rule says: if the market opens above or below the value area (of the previous day) and the market then moves in the direction of the value area in the first hour (initial balance i.e. the letters A and B) and also reaches the value area, then the Market reach the other end of the value area with a probability of 80%.
The prerequisite is that a balanced day with a well-defined bell curve was formed the day before.
The conservative trader enters a long position when:
The opening price is below the value area of the previous day,
During the first hour of the trading day, the price rises in the direction of the value area (of the previous day) and also reaches this - the (today's) initial balance thus extends from below the VAL into the value area (of the previous day).
The course objective is the VAH (of the previous day).
The course target, the other end of the previous day's value area, can be achieved quite quickly.
The speculative trader can open the position earlier: If the price reaches the previous day's value area in the first half hour, the position can be opened at the beginning of the second half hour.
Vice versa for a short trade:
The opening price is above the value area of the previous day,
During the first hour of the trading day, the price falls in the direction of the value area (of the previous day) and also reaches this - the (today's) initial balance thus extends from above the VAH into the value area (of the previous day).
The course objective is the VAL (of the previous day).
The course target, the other end of the previous day's value area, can be achieved quite quickly.
The speculative trader can open the position earlier: If the price reaches the previous day's value area in the first half hour, the position can be opened at the beginning of the second half hour.