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, 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 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.

The information contained above may have been prepared by independent third parties contracted by Nadex. In addition to the disclaimer below, the material on this page is for informational and educational purposes only and should not be considered an offer or solicitation to buy or sell any financial instrument on Nadex or elsewhere. Please note, exchange fees may not be included in all examples provided. View the current Nadex fee schedule. Nadex accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representations or warranties are given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk and any trading decisions that you make are solely your responsibility. Trading on Nadex involves financial risk and may not be appropriate for all investors. Past performance is not necessarily indicative of future results. Nadex contracts are based on underlying asset classes including forex, stock index futures, commodity futures, cryptocurrencies, and economic events.

Trading can be volatile and investors risk losing their investment on any given transaction. However, the design of Nadex contracts ensures investors cannot lose more than the cost to enter the transaction. Nadex is subject to U.S. regulatory oversight by the CFTC.