The 80% Rule
Market Profile's 80% Rule
If, after trading outside the Value Area, we then trade back into the Value Area (VA) and the market closes inside the VA in one of the 30 minute brackets then there is an 80% chance that the market will trade back to the other side of the VA.
1. Wait for the trade to close inside the VA.
2. Try and get best possible trade entry. If possible, enter from VA level that was crossed in order to close inside VA.
3. Target most of the position at the other side of the VA.
One trader noted to me that in testing the 80% rule using TradeStation the probability is actually 62% and not 80%. The trade supposedly gets its name from the probability of the outcome of the trade. i.e. There is an 80% probability that the market will trade to the other side of the VA.
Look at your risk/reward when taking this trade. If the VA is only 2 points wide and you use a 3 point stop then this trade is probably not worth taking when the VA is this small.
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