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Thread: The 80% Rule

  1. #1

    The 80% Rule

    How to Pick Intraday Market Direction – The 80% Rule
    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.
    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 [Only registered and activated users can see links. ] ): 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 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.



    [Only registered and activated users can see links. ]

  2. #2

    Free Trend Following Trading System Rules

    Yes, I confess. I wrote that title to mess with search engines. As it turns out, the most popular page on this site, by far, is this one. It’s particularly curious for me, since I keep making the point that trading system rules are overrated. I’ve never come across anyone selling trading rules who actually knows anything about trading. And yet people pay thousands of dollars for such rules.
    I’ve been approach sometimes by skeptics who don’t believe that trend following trading systems rules can be as simple as I claim in my book and on this site. They are right. The rules can in fact be even simpler.
    Let’s try this: Construct a trend following trading system with the simplest possible rules. How many lines of code can you boil it down to? No, you still have too many rules.
    The simplest system you’ve ever seen
    Here are the rules for this system.
    • If the current price is higher than the price one year ago, go long.
    • If the current price is lower than one year ago, go short.
    I ran this system on a broad set of diversified futures markets, covering all asset classes. But a system so simple cannot possibly work, right? It doesn’t even have any technical indicators. Well, judge for yourself.

    12 Month Price System
    To make it a little easier to read, I’ll show the yearly results below as well. The green bars show the returns and the red bars the maximum intra-year drawdown.

    Results by Year
    This simple strategy showed annualized return of 22% against a max drawdown of 26% and a Sharpe ratio of 1.1. This is before fees, so you’ll need to shave a bit on that, but it’s still better than most do in real life. Against that backdrop, do you really want to spend more time investigating the merits of exponential moving average versus simple moving average, RSI versus MACD, Bollinger Bands versus Keltner channels etc?
    These rules shown here are of course not perfect. They weren’t meant to be. They’re just a demonstration how just how simple trend following can get, and still work. The rules do make for an interesting starting point though. They don’t need to be modified all that much to become quite interesting as a real trading strategy.
    What matters are broad concepts. Get the concepts right, and it will be simple to construct rules around them. Most hobby traders fail because they are obsessed with some secret black box rules that would solve all of their problems. This is a myth created by people who wants to sell useless trading systems at high prices. If you really want to understand trading, you need to move beyond these myths.
    Some trading strategies can get a bit complex, but rarely for the reasons that people outside the industry would expect. Practical issues are often a cause of complexity for instance. Rebalancing, portfolio constraints, risk management etc. can add complexity.
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