80—20’s — strategy, used by us for day trading. Many of our readers, maybe, already familiar with the book "Taylor's Trading Technique" (The Taylor Trading Technique), a reference guide for swing trading. In a nutshell, Taylor's method implies, that markets move at a natural pace, folding day of purchase, sell day and short sell day. This model is also supported by research by Steve Moore at the Moore Research Center..
Steve studied the days, closed in the upper 10 percentage of their ranges. Then he checked the percentage of cases, when the market on the next day exceeded the maximum of such days and the percentage of cases, when it actually closed above. His research showed: when the market closes at the highs / lows 10 percent of its range, there is an 80-90 percent chance, that the next morning it will continue in the same direction, but will actually close above / below only in 50 percentage of cases. It means, that there is a good chance of a reversal in the middle of the day. How you can create a methodology, exploiting this reversal phenomenon? Direct Jackson, too trader, Noticed, that the market has an even higher probability of a reversal, if the first bar of the chart opens at the opposite end of the daily range. Therefore, we added a precondition, that the market should open in the lows 20 percentage of its daily range. Then, to create more trading opportunities, we have downgraded the close range function from 90 to 80 Percent. This did not affect the overall profitability.. If the market opened in the lows 20 percent of its daily range and closed in the upper 80 percentage of its daily range, the next day the sale scheme is assigned (and vice versa for purchase).
Finally, as for all other presented Strategies, night data is ignored. The range should only be based on data from daily sessions.
FOR PURCHASE (FOR SALE VERSA)
1. The market opened yesterday at the highs 20 percent of its daily range and closed in the lower 20 percentage of its daily range.
2. Today, the market should trade at least 5-15 ticks below yesterday's low.. This is the general idea. The exact value at your discretion.
3. Then the buying stop is placed at the level of yesterday's minimum for entry..
4. After opening a position, put the initial protective stop near today's low. Pull your stop up, to fix the accumulated profit. This trade is only suitable for day trading..
So that you can get a better feel for this strategy, let's look at some examples
EXAMPLE 1. Bonds — December 1995 of the year - 15 minute bars.
1. 26 October 1995 years bonds opened at the top 20 percent of its range and closed in the lower 20 percent of its range.
2. Today's bonds are trading at least five ticks below yesterday's low and reverse. We go long at 116-08, and the market grows by 3/4 item
EXAMPLE 2. Cotton - December 1995 of the year - 15 minute bars.
1. 6 October 1995 cotton opens at the top of its range and closes at the bottom 20 Percentage.
2. The next day, the cotton trades at least five ticks below the previous day's low and reverses.. We go long on 85,80 with a stop in the area 85,50, The market continues to rise by more than 200 points before closing. (Remember, what is a scalping strategy, using the daily trend of the previous day's pattern reversal. Big profit from 80-20 is an exception, not a rule.)
EXAMPLE 3. Soy - January 1996 of the year - 15 minute bars.
1. 9 November soybeans open at the top of their range and close at the bottom.
2. The next morning it trades at least five ticks below the previous day's low and reverses. Our buy stop is at the previous day's low 682 Turns. A protective sell stop is placed in the area 677. Soy trades sideways and then rises by nearly nine cents. Stop pulling up, to grab profits.
LARRY:
80--20 gives day traders low risk schemes. When the bar, the next after the 80-20 bar of the previous day crosses the high / low and then reverses, this is a test for breaking the high or low. This is always one of the strongest places to place your stop.. The previous day's buy has run out, and latecomers (weak hands) can't keep going.
LINDA:
This model does not necessarily have any long-term value.. She, Nevertheless, captures the market rhythm of Taylor's one-two-day pullback. It is a classic short-term swing trading..
LARRY:
Once again we remind, that this is not a mechanical system. We just want to use the possibilities of the moments, when the market loses strength and reverses. Another filter, something to look out for, size of the first bar of the chart.
LINDA:
Correct. I especially love to look for reversals after bars with a larger daily range..
LARRY:
With proper money management and stop placement, you can make this a profitable part of your day trading methodology..
Tables, given in the Appendix, show data from all original research by Steve Moore. As you can see, 80—20 exploits a high market reversal trend, and this creates the conditions for a short-term transaction with a high probability of success.
Material taken from Books "Market Secrets" - Connors, Raska.
