We had a real fast move in the markets yesterday in the afternoon session with big money and the longer time frame coming into the markets to take off 200 points in the BankNifty and 70 points in the Nifty in two hours flat.
Despite the early morning weakness, what stood out for me was the market’s penchant to respect one of Market Profile’s most famous rules-the 80 % rule.
In fact Profilers would say that market made that high just to respect that rule.
For the un-initiated in Market Profile, the rule states simply :
“If the market opens (or gets outside of the value area ) and then gets back into the value area for (2) consecutive 30 min bars the 80% rule states it has a high probability of completely filling the value area i.e it goes from value area low to value area high or vice-versa “
Let’s look at the chart of yesterday :
Notice the high of the day is the value area high from day before.
I want to quickly take you back to last week’s weekly report posted last Saturday here on the blog.You can find it here.
I’ll re-post this chart from that post.
Based on that chart we called for an expiry above 5465 which incidentally happened.
Now I want you to apply the above rule ( 80 % rule) to this chart and see what happened.
Here’s the chart of the Nifty future ( September values ) with that 80 % rule done.
Came from above value high and moved to value low, though I’ll be the first to admit that I didn’t think that it was possible to get that done in one day.
The 80 % rule is an 8 wins in 10 trades probability, a very good ratio, and a must to have in every trader’s armory.
Looking ahead to the open on Monday, the AUD/ JPY our barometer for global sentiment at the close of NSE trading, didn’t reflect the pessimism seen in the markets in the afternoon session.
We closed our conservative shorts at the closing bell on friday.