Value Area

The Value Area is where 70% of the previous days volume took place. Basically
the Heart of the previous days activity. We calculate the value area daily exclusively for
the CBOT.
You WILL see variances in the value area numbers posted at the CBOT site and
from other data providers, because we use ACTUAL volume numbers to
calculate our published numbers (so we feel we have the most correct numbers any
source could have), while most others use average volume numbers. What one needs to
remember, like all other Key support and resistance levels, the value area levels are not
evaluated as specific points per say, they are areas of intraday road blocks. Astute
traders realize this and use them along with their overall market interpretation.
The Play
We use 30' bars to qualify our potential trade opportunities.
IF the market opens (or gets outside of the value area) and then gets back into
the value area for (2) consecutive 30' bars the 80% Rule states it has a high probability
of completely filling the value area. (I've seen it published to as much as 80%). The rule
can be misleading, in that you DON'T have to see both 30' bars close within the value
area. The first bar can enter and close within the value area and when the second bar
opens within the value area we have met the Rule criteria. (See the example below).
We don't blindly follow the above. There are guidelines that increase the chance of
approaching the 80% probability that we teach in our mentoring programs and seminars.
The trader who enters a value area trade without evaluating other market conditions has
a better than 50% chance of seeing the value area filled but the power of using the 80%
Rule lies in the evaluation of the current market variables as, value area size,
extension and market internals.
Note: The top of the value area generally provides intraday support while the bottom of
the value area generally provides intraday resistance and suggest one post the value area
directly on their futures charts.
In the illustration below you can see the market opened inside the Value Area, got out of
the denoted purple value area and in the after noon the 10th red bar of the session got
back into the purple value area which was our first alert to watch for the next bar opening
or staying inside the value area. When it did, the 80% Rule, by definition, was triggered
which was the useful information traders were looking for, and the market continued
straight down completely filing the value area.