The Value Area & 80% Rule

The Value Area & 80% Rule – IF the market opens (or gets outside of the value area) and then gets back into the value area for (2) consecutive 30′ bars the 80% Rule states it has a high probability of completely filling the value area. (I’ve seen it published to as much as 80%). The rule can be misleading, in that you DON’T have to see both 30′ bars close within the value area. The first bar can enter and close within the value area and when the second bar opens within the value area we have met the Rule criteria. (See the example below).

We don’t blindly apply the 80% Rule. Instead, there are specific guidelines that enhance the probability of success, which we teach in our mentoring programs and seminars. A trader who enters a value area trade without carefully evaluating other market conditions still has a better than 50% chance of seeing the value area filled. However, the true strength of using the 80% Rule lies in thoroughly assessing current market variables such as value area size, extension, and market internals.

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Note: The top of the value area generally provides intraday support while the bottom of the value area generally provides intraday resistance and suggest one post the value area directly on their futures charts.In the illustration below you can see the market opened inside the Value Area, got out of the denoted purple value area and in the after noon the 10th red bar of the session got back into the purple value area which was our first alert to watch for the next bar opening or staying inside the value area. When it did, the 80% Rule, by definition, was triggered which was the useful information traders were looking for, and the market continued straight down completely filing the value area.

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