Trading the 80 Percent Rule with Binary Options

Trading the 80 Percent Rule with Binary Options

Trading Daily Binaries can be beneficial for people who don’t have the time to babysit the markets and watch the charts all day long. It’s really just a matter of staying in the right side of a trend, knowing how to manage losses, and setting profit targets.

Trading the 80 Percent Rule with Binary Options
Trading the 80 Percent Rule with Binary Options Getty Images

In today’s trade, we are going to use a popular trading strategy called the 80 Percent Rule with a daily market bias using binary options.

The 80% Rule is a common futures strategy that uses Volume Profile. Simply stated, Volume Profile will display the Value Area, which is the zone where 70% of the previous day’s trades occurred. Volume Profile is available on many popular charting platforms, including ThinkorSwim and Ninja Trader.  Below is a screen shot of trading educator, Sean Jantz  with  BinaryTradeGroup.com, painting the Value area as a gray box on his charts.

There are three key elements to the Value Are Box:

  • Value Area High – This is the ceiling of the box.
  • Value Area Low – The floor of the box
  • Point of Control – The price level where the greatest number of trading activity occurred

The value area box represents where the marketplace of buyers and sellers believe “fair value” resides. If price travels too far above the value area box, it becomes too expensive, and selling pressure will likely settle in.  If price drifts too far below the box, then it will start to attract buyers.

Trading the 80 Percent Rule with Binary Options

ThinkorSwim Workspace prepared by Sean Jantz at BinaryTradeGroup.com on Thursday, April 20  2017

The 80 Percent Rule is a trading strategy which uses Market Profile or Volume Profile is defined as follows:

If the market travels into the Value Area Box from above or below the box, and stays inside the box for 2 consecutive 30-minute periods, then there’s an 80 percent chance that the value area will get filled. A Google Search on this strategy will give you plenty of additional insights.

Looking at the chart above, the US 500 index drifted below the Value Are Box, and then came back into the box for an hour. This created the expectation that the market would travel from Value Are Low (2336) all of the way up to Value Area High (2348).

Placing a Binary Options Trade Based on the 80% Rule

7:30 am EDT :  The US 500 was trading at 2341, with the expectation of a move toward Value Area High (2348). The Daily (4:15 pm) time frame was selected, and the following trade was taken:

BUY US 500 (Jun) >2348.0 (4:15 PM) $25
Maximum Risk per Contract Traded: $25
Maximum Reward Per Contract Traded: $75

The plan for this trade was to exit the trade once the market touched Value Area High at 2348. The reason for taking profit was that Value Area High can act as resistance. It was a target that could yield a 1:1 risk reward or better.

Trading the 80 Percent Rule with Binary Options

 

Trade Results

Trading the 80 Percent Rule with Binary Options

In this example the 80 Percent rule worked as expected filling the value area box and more as the market kept moving upward past 1256.

Since the Market hit Value Area High at noon, there was no way of knowing that it would keep chugging upward for the next 4 hours. The decision was made to exit the trade on the touch of Value Area High, which yielded the following:

Daily Binary: $22.50 Profit against $25 Risked, for a 90% return on capital risked (exchange fees not included)

However had the trade not worked out, using binary options our trade risk was always well defined and capped at $25 if choosing to hold the position until expiration.

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