80 Percent Rule
The 80 Percent rule is the most popular Market Profile / Value area trading strategy, 1st mentioned in The Profile Reports ( Dalton Capital Management 1987-1991), which states that If the Market opens above or below the Value area and then trades within the value area for two consecutive brackets ( Open or close of 2 consecutive Half hour period within the value area ), then it has 80% chance of auctioning through the entire value area.
The 80 Percent rule works well when there is a Value / Balance created on the prior day. Value here means a balance, as A trend day ( be it an elongated trend or double distribution ), does not carry value but a balanced day with a bell shape distribution is the best example of Value area.
Following are the various examples where the 80% rule might come into play.
80 Percent Rule Example 1
The Market Opens above the previous day’s value area and one half hour period closes within the Value area and the next half hour opens within the value area, then the criteria for the 80% rule is satisfied and we do not have to wait for the close of the 2nd Half hour and can initiate short positions in this case for a potential target of the Value area low, keeping a conservative stop loss of the bar high of the period that entered the value area.
80 Percent Rule Example 2
The Market Opens below the previous day’s value area and one half hour period closes within the Value area and the next half hour opens within the value area, then the criteria for the 80% rule is satisfied and we do not have to wait for the close of the 2nd Half hour and can initiate long positions in this case for a potential target of the Value area high, keeping a conservative stop loss of the bar low of the period that entered the value area.
80 Percent Rule Example 3
The Market Opens within the previous day’s value area and one half hour period closes within the Value area and the next half hour opens within the value area, then the criteria for the 80% rule is satisfied and we do not have to wait for the close of the 2nd Half hour and can initiate short positions if the Open is nearer to the Value Area High, for a potential target of the Value area low, keeping a conservative stop loss of the bar high of the open bar or the Value area high. The opposite is true when the market opens within the Value area near to the Value area low, in that case we can initiate long positions for a potential target of value area high, keeping a stop loss at the bar low or the Value area low.
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