Trading Tip #13: How to Pick Intraday Market Direction – the 80% Rule

[Do Or Die 10]

DoOrDie - I think you've missed my point. It's the expectation that counts not the probability. As I said I can easily create a system that has 90% winners but has no edge. I've yet to see a traders account that opens the scale of their edge (not the method) up to analysis. I notice a tendancy that people like to say they are winning but don't like to be accountable.

 

I only had a brief look at the page you post but it doesn't look like people are posting enough information. It's not possible to analyse "it's going to x", without knowing what action's would be taken if it does something different. So saying it's going to x before it takes out my stop at y (or some other exit measure) is possible to analyse.

 

-- DM

 

Maybe we both are talking talking the same thing.

 

Either the entry OR exit method needs to have 'edge'. You can take an entry with a coin toss. But if your exit has edge (which maybe be based on volatility, patterns or whatever), you will still make profit.

 

Now coming to the point what I was demonstrating in the thread an entry with edge, by giving live signals. I started with 9 stocks and say you shorted each with equal money either through short selling stock or through options). Whichever position sizing method you apply, you will find the entry has an edge. Just go through my posts only, linked through each update by quoting previous one. The thread has been downgraded by one member claiming 100% accuracy in his entry signals, so just go through my update posts, linked with each other (5-6 posts among 9 pages of thread). Also to repeat, the intial stop for each entry is the nearest supp/ress, which may be recent pivot high or WRB high.

 

http://www.traderslaboratory.com/forums/technical-analysis/11438-divergence-trading-strategy-advanced-9.html#post133835

[dangermouseb 10]

I'm not certain we are talking the same thing. The point I'm putting forward is that an entry or exit can't have an edge by itself. So without a specification of how to exit (which could be as simple as a coin flip) it is not possible to say an entry has an edge.

 

I'm not sure what you mean by position sizing. Van Tharps is about managing your betsize to be consistent with your objectives. If I consistently betted 10 times the size on the worst performing stock in your portfolio then I'd have a very different outcome compared if I betted 10 times size on the best performing stock. Size of the trade is part of the strategy. Expectation, volatility and covariation with other postions are key. Unconditional probability of reaching a target doesn't mean much.

 

I'll have a look later at you trades - do you have them in spreadsheet form?

 

Cheers

 

-- DM

[Do Or Die 10]

I'll have a look later at you trades - do you have them in spreadsheet form?

 

There are only 9 trades initiated so far, each with pre-definition of exit rules (and hence a good aprox of risk/reward). I think there is too much mess there so let me walk you through it.

 

A buy trade is executed when market just starts turning up after fall, and vice versa. Hence the risk in each trade 1-2 ATR (all trades on dailies for easy follow up). The exit method is not defined, but for calculating performance it can be chosen anything from 1-5 ATR. The percentage of winners will depend upon choosing different entry and exit risk, they will lie 40-80% range.

 

These are the only relevant posts:

http://www.traderslaboratory.com/forums/technical-analysis/11438-divergence-trading-strategy-advanced.html#post133325

http://www.traderslaboratory.com/forums/technical-analysis/11438-divergence-trading-strategy-advanced.html#post133326

Divergence Trading Strategy- Advanced - Page 3 - Traders Laboratory Forums

Divergence Trading Strategy- Advanced - Page 8 - Traders Laboratory Forums

http://www.traderslaboratory.com/forums/technical-analysis/11438-divergence-trading-strategy-advanced-9.html#post133835

[dangermouseb 10]

9 trades isn't enough to make any statistical inference from. I'll have a look when you have 30+.

 

You might want to keep exact records (e.g. in XL) for your own analysis purposes. (simplest form is entry time, level, size, and same for exit, I also keep a list of all my stop levels and time) additionally I keep notes on my thoughts and feelings as a journal - though that is becoming less relevant as I become more statistically focussed.

 

-- DM

[Do Or Die 10]

9 trades isn't enough to make any statistical inference from. I'll have a look when you have 30+.

 

You might want to keep exact records (e.g. in XL)...

 

Yes I know, but I mentioned for those who may be interested to track live trading. (Historically everything looks obvious)

 

BTW about my actual trading, its way ahead of keeping XL journals, lets drop it altogether.

[Do Or Die 10]

XL trade logs (backtested) are attached in this article: Regime Adjusted RSI System

[dangermouseb 10]

>> BTW about my actual trading, its way ahead of keeping XL journals, lets drop it altogether.

 

Apologies - don't mean to preach to the choir.

 

>> Yes I know, but I mentioned for those who may be interested to track live trading. (Historically everything looks obvious)

 

I've looked at too many systems where people think they have an edge but don't so now I don't even bother unless I can get a good cross-validated information ratio from their results first, and their method is sound (including record keeping in an electronic form). Saves a lot of time.

 

Most recent one was a friend who wanted me to implement a wavelet thingy but threw away his broker records on a daily basis!!

 

Next!!!

 

;o)

 

-- DM

[ckait 10]

All the statistical stuff means nothing theses days with all the news that comes out of europe every ten minutes. Context is everything and MP in its traditional roll is dead, like the pit. Just my 2 cents.

[khamore1 10]

Joshdance I want to thank you for your analysis and response to Larry Levine Secret#13 you saved a lot of money to newbie’s on this site, you practically exposed a crook disguised as a trader’s friend

Even on his free webinars they talk 59 minutes commercial and 1 minute about their fake systems and a follow up by sales pit with a promise to make you a billionaire just for a small sum of 15k I’m not sure if Larry involved in all this but I know everyone in his company does

[SunTrader 10]

............. with a promise to make you a billionaire just for a ...

Now who is talking crap.

[Jleon 10]

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 #12): The range of prices where 70% of yesterday's volume took place. For instance, if the value area in the S&Ps is 115800-117200, then 70% of the previous day's volume took place between the prices of 115800-117200.

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 the market opens inside the value area and then migrates 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.

 

Best Trades to you,

 

Larry Levin

 

You are full of shmit, show me a brokerage statement to back it up. Happy Trades

[TheDude 10]

Where's Larry gone?

 

I wanna hear secret tip #14.

 

I hear that his uncle who is the head of trading at goldman sucks, (Utah branch) whispered this one in his ear - and he swore not to tell anyone until now.......

 

Secret tips #1 -12 are to be found in Christmas Crackers all round wall street this festive season.

[TheDude 10]

Hey folks, Larry here, I just wanted to share another amazing tip that i normally only give the bozos who i can sucker in to my course - errr i mean top traders.

 

here we go.....

 

 

most traders think they have to buy low, sell high. Well, this is why they LOOOZE. youve probably been an experienced trader if youve come to my site, and are looking for that little edge to make even more cash right? well, here it is.....

 

 

dont buy low, sell high, instead, buy high and sell low! sound daft? well, you may have heard that all the best traders are contrarian by nature. that means they do the opposite of everyone else right? well then they must be buying high and selling low. you see. keep it to your self though - we cant have everyone trading my secrets or the edge will disappear!

 

Yours,

 

Larry 'the shill' Levin

[SunTrader 10]

Did anybody who was not aware of who Larry Levin is, prior to reading this thread, bother to google his name before deciding to trash him? I didn't think so.

 

Has anyone paid for any of his services, I include myself in this? I didn't think so.

 

But no problem giving opinions though. Wow!

 

Although I haven't bought anything from him I was aware of him for a few years such as he was a 20 year veteran S&P pit trader.

 

Any of us that can make that claim? All together now: I don't think so.

[joshdance 10]

Although I haven't bought anything from him I was aware of him for a few years such as he was a 20 year veteran S&P pit trader.

 

Any of us that can make that claim? All together now: I don't think so.

 

Irrelevant. Though I have no personal digs to take at someone, because this isn't personal, it's business, the fact remains that what's posted here is a strategy which obviously hasn't undergone any sort of back testing. As a discretionary trader, I do not put a lot of stock into the type of back testing I performed as posted earlier for my own personal methods, but when a claim is made of 80%, then it should bear scrutiny. And under scrutiny, it's obvious that the criteria for this trade premise is not even common enough to encounter more than once or a month over the last few years. Hardly the way a professional, and a 20 year veteran at that, should approach his trading, particularly as he is posting as a registered vendor (with this site) and thus looking to gain business.

 

I have the utmost respect for Larry or any other pit traders who could survive that long. But the topic at hand stands. Most of his other articles have been on things like moving averages, "the trend is your friend," and other truly useless information. I have not read them all but a browse of them should leave you unimpressed. I went to his web site and briefly watched the video of him on Bloomberg. This is supposed to convey credibility, but listening to his words, I hear nothing of substance, as is the case with most anything on that channel or CNBC. Again, he has more street cred than me, that's for sure, I'm just a newbie nobody. But I can guarantee you that I won't post an article about value areas and make claims that I don't back up with data. To top it off, he has several posts here, has received a few thanks from other members, but has not once thanked anyone else. Really? There are many useful posts here from members who know their stuff; it kind of bugs me when guru-wannabes come on a site, post stuff like "the trend is your friend", and don't thank much more helpful posts from long time contributing members.

[TheDude 10]

Did anybody who was not aware of who Larry Levin is, prior to reading this thread, bother to google his name before deciding to trash him? I didn't think so.

 

Has anyone paid for any of his services, I include myself in this? I didn't think so.

 

But no problem giving opinions though. Wow!

 

Although I haven't bought anything from him I was aware of him for a few years such as he was a 20 year veteran S&P pit trader.

 

Any of us that can make that claim? All together now: I don't think so.

 

eeer yes I can actually. I never traded the S&P pit, but I have experience as a local in other pits.

 

Besides, it's no secret that many (not all) former pit traders (even the good ones) couldnt adjust to the screen so resulted to shill instead.

 

Anyway, seeing as you seem to imply that just because someone traded in a pit makes them a trading god, feel free to follow the rubbish that the shills spit out. With such short sightedness, youre going to lose your money to either a shill or to the market anyhow.

 

See you in the market!

 

Dude.

[TheDude 10]

Irrelevant. Though I have no personal digs to take at someone, because this isn't personal, it's business, the fact remains that what's posted here is a strategy which obviously hasn't undergone any sort of back testing. As a discretionary trader, I do not put a lot of stock into the type of back testing I performed as posted earlier for my own personal methods, but when a claim is made of 80%, then it should bear scrutiny. And under scrutiny, it's obvious that the criteria for this trade premise is not even common enough to encounter more than once or a month over the last few years. Hardly the way a professional, and a 20 year veteran at that, should approach his trading, particularly as he is posting as a registered vendor (with this site) and thus looking to gain business.

 

I have the utmost respect for Larry or any other pit traders who could survive that long. But the topic at hand stands. Most of his other articles have been on things like moving averages, "the trend is your friend," and other truly useless information. I have not read them all but a browse of them should leave you unimpressed. I went to his web site and briefly watched the video of him on Bloomberg. This is supposed to convey credibility, but listening to his words, I hear nothing of substance, as is the case with most anything on that channel or CNBC. Again, he has more street cred than me, that's for sure, I'm just a newbie nobody. But I can guarantee you that I won't post an article about value areas and make claims that I don't back up with data. To top it off, he has several posts here, has received a few thanks from other members, but has not once thanked anyone else. Really? There are many useful posts here from members who know their stuff; it kind of bugs me when guru-wannabes come on a site, post stuff like "the trend is your friend", and don't thank much more helpful posts from long time contributing members.

 

Josh, Well done for the research done earlier.

 

I'm not suggesting you go and test this, but it may interest some here to know that the ORIGINAL idea as suggested by Cisco futures did differ slightly to Larry's rehashed version.

 

The ORIGINAL version stated that the 'trade alert' signal was triggered when a bar opened outside the value, and closed inside the value. That was it. No other second bar was needed. No entry point was specified, and no stop. The idea was simply that price was being rejected from outside the value area, and was now 80% likely to rotate back through value. In MP terms, the market is transitioning from a previous state of imbalance, back to a state of balance, where the value is unchanged. It was up to the individual to decide how to enter and exit. This was a concept, or an idea, not a hard system; A bit like MP itself.

 

Given trading is about managing probabilities, the 80% is a probability that price will at some point rotate fully in the value area. It never stated our trades will win 80% of the time as that would depend on the individual. Cisco do 'suggest that if stops are to be used at all in their ideas, then the trader may want to consider a stop of 1 octant (which I believe is 1/8th of the days range, but Im not 100%). More info can be found with a google on cisco futures. they have a lot of info on mp - if a little 'outdated' if i remember - havent used them in a long while.

 

I too did some testing on ES - but not quite as extensive as yours I admit (about 50 days I think).

 

On a mechanical basis, I found using the cisco version, price was 78% likely to reach the POC, but only 50% likely to traverse the value. this would make sense if we remember trade is likely to slow and maybe reverse due to the higher liquidity that will probably exist at the POC. A bounce of the virgin POC is another trade concept some like to use...

[MightyMouse 12]

Josh, Well done for the research done earlier.

 

I'm not suggesting you go and test this, but it may interest some here to know that the ORIGINAL idea as suggested by Cisco futures did differ slightly to Larry's rehashed version.

 

The ORIGINAL version stated that the 'trade alert' signal was triggered when a bar opened outside the value, and closed inside the value. That was it. No other second bar was needed. No entry point was specified, and no stop. The idea was simply that price was being rejected from outside the value area, and was now 80% likely to rotate back through value. In MP terms, the market is transitioning from a previous state of imbalance, back to a state of balance, where the value is unchanged. It was up to the individual to decide how to enter and exit. This was a concept, or an idea, not a hard system; A bit like MP itself.

 

Given trading is about managing probabilities, the 80% is a probability that price will at some point rotate fully in the value area. It never stated our trades will win 80% of the time as that would depend on the individual. Cisco do 'suggest that if stops are to be used at all in their ideas, then the trader may want to consider a stop of 1 octant (which I believe is 1/8th of the days range, but Im not 100%). More info can be found with a google on cisco futures. they have a lot of info on mp - if a little 'outdated' if i remember - havent used them in a long while.

 

I too did some testing on ES - but not quite as extensive as yours I admit (about 50 days I think).

 

On a mechanical basis, I found using the cisco version, price was 78% likely to reach the POC, but only 50% likely to traverse the value. this would make sense if we remember trade is likely to slow and maybe reverse due to the higher liquidity that will probably exist at the POC. A bounce of the virgin POC is another trade concept some like to use...

 

The problem is that price didn't go straight up to the poc 78% of the time. So, to trade it, you had to trade it with blind faith and sit through the draw-downs of when it first went down to test lower or prior value and then proceeded to reach the poc target.

 

If you believe in magic, you might sit through the huge loss and get lucky, but if you employ any sort of sane money management, you'll end up getting stopped out far more than 22% of the time like the 78% success rate might imply to a fool ready to lose money.

Edited December 17, 2011 by MightyMouse

[TheDude 10]

The problem is that price didn't go straight up to the poc 78% of the time. So, to trade it, you had to trade it with blind faith and sit through the draw-downs of when it first went down to test lower or prior value and then proceeded to reach the poc target.

 

If you believe in magic, you might sit through the huge loss and get lucky, but if you employ any sort of sane money management, you'll end up getting stopped out far more than 22% of the time like the 78% success rate might imply to a fool ready to lose money.

 

exactly.Thats where trade management comes in - using whatever timing method like a bounce off support/resistance following such a correction to enter.

[joshdance 10]

The ORIGINAL version stated that the 'trade alert' signal was triggered when a bar opened outside the value, and closed inside the value. That was it. No other second bar was needed. No entry point was specified, and no stop. The idea was simply that price was being rejected from outside the value area, and was now 80% likely to rotate back through value.

 

...

 

On a mechanical basis, I found using the cisco version, price was 78% likely to reach the POC, but only 50% likely to traverse the value. this would make sense if we remember trade is likely to slow and maybe reverse due to the higher liquidity that will probably exist at the POC. A bounce of the virgin POC is another trade concept some like to use...

 

Here are the results for the original cisco test from the last 1000 days. 120 days price opened outside of value and closed the first 30 mins with it. Of those, 75 times it hit the other end of the value area. So, 12% setup rate, 62.5% success rate. Attached is the chart showing the test results. Obviously it would be good to know how large the value area was, but I don't have time right now to do this. I did also calculate how often the prior VPOC is hit, and it's 107 out of 120 times, or 89% of the time.

 

This testing does not account for cases where, for example, the POC is near one extreme of the prior VA, which perhaps is hit even during the first 30 minutes. Also, for the opposite end VA being hit, it does not account for cases where the prior VA is quite small, and again, perhaps the first 30 minutes closes very near or even past the end of the VA itself. More extensive testing would need to be performed to determine how often cases like this occur.

[TheDude 10]

Here are the results for the original cisco test from the last 1000 days. 120 days price opened outside of value and closed the first 30 mins with it. Of those, 75 times it hit the other end of the value area. So, 12% setup rate, 62.5% success rate. Attached is the chart showing the test results. Obviously it would be good to know how large the value area was, but I don't have time right now to do this. I did also calculate how often the prior VPOC is hit, and it's 107 out of 120 times, or 89% of the time.

 

This testing does not account for cases where, for example, the POC is near one extreme of the prior VA, which perhaps is hit even during the first 30 minutes. Also, for the opposite end VA being hit, it does not account for cases where the prior VA is quite small, and again, perhaps the first 30 minutes closes very near or even past the end of the VA itself. More extensive testing would need to be performed to determine how often cases like this occur.

 

Interesting stuff. Thanks.

 

If I understood you right, you only tested when the first 30min bar of the day met the conditions? If the premise was valid, it shouldn't matter when in the day the bar occurs. I dont think the results would differ in terms of %, but the number of outcomes/trades should increase.

 

If Im trading the afternoon session, and attempt to responsively trade back through the current days value is something I look for. Yesterdays and todays VAL and VAH are good levels to watch IMO, especially if there are smaller balance areas near by. I luv trading me.

[joshdance 10]

Interesting stuff. Thanks.

 

If I understood you right, you only tested when the first 30min bar of the day met the conditions? If the premise was valid, it shouldn't matter when in the day the bar occurs. I dont think the results would differ in terms of %, but the number of outcomes/trades should increase.

 

If Im trading the afternoon session, and attempt to responsively trade back through the current days value is something I look for. Yesterdays and todays VAL and VAH are good levels to watch IMO, especially if there are smaller balance areas near by. I luv trading me.

 

What matters is how far away the close of the first 30 minute bar is from the opposite side of the VA, and if there is a tradeable opportunity. Say the prior VA range is 1250 to 1238. The 9:30 open the next day is just below at 1237, and it does an opening drive up, closing at 10:00 at 1247. This is a different potential trading opportunity than if it opens at 1230, and closes 30 minutes later at 1240, if we are looking at this particular trade premise.

 

Also, with major news often being at 9:55 and 10:00, additional criteria would need to be used to filter these out, or at least account for them somehow. It just changes the practical trading situations enough that it's not as simple as saying "62.5% of the time it does XYZ" ... well yes, but that does you no good if you can't profit from it in a sensible and risk-managed way.

 

This is why I put very little weight into back test results. There are simply too many variables, from scheduled news reports, to surprise news which will never show up on any calendar if you even wanted to account for them, to sociopolitical factors, to "it's the Friday before Christmas and everyone's gone home" to ... you get the point. I find it much more helpful knowing this now, that if I do happen to see that the first 30 minutes closes inside the prior day's VA, that statistically there is a better chance of it touching the other side than not. But beyond that, attempting to create a hard trading rule that takes advantage of that is, IMO, a waste of time at best, and at worst, probably a losing strategy until much more specific, human, experience-tested rules can be applied.

 

IMO it's much more important what's going on NOW (as in, the last few seconds, minutes, or since the opening bell); sometimes people get too caught up in the past and forget to look at the present.

[TheDude 10]

i agree. context is much more important.

 

if you have a scenario that looks like it could lead to x favourable excursion trading on say a 0.6 probability, then add context/human understanding to the element and you can make that 0.7 or 0.75+ with some ease.

 

i agree back testing isnt all that most make it out to be, but its a good sanity check to see if an idea is worth looking at in further detail.

[SunTrader 10]

... Anyway, seeing as you seem to imply that just because someone traded in a pit makes them a trading god,..........

 

I have, where? All I ask was who does have such experience among those so quickly to criticize another.

 

And while you are at it pointing to where I have done anything more than that, maybe you can expound on your pit trading experience.

 

This should be good.

[Stiffroot 10]

Larry Levin and Patrick Assalone are the best.....bar none!

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 #12): The range of prices where 70% of yesterday's volume took place. For instance, if the value area in the S&Ps is 115800-117200, then 70% of the previous day's volume took place between the prices of 115800-117200.

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 the market opens inside the value area and then migrates 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.

 

Best Trades to you,

 

Larry Levin