By Mark Likos, Chief Analyst & Senior Market Technician FireTraders, Editor of The Likos Letter - Daily Trading Advisory.

The Value Area is defined as where 70% of the previous days volume took place. Basically the Heart of the previous days activity. We calculate the value area daily for the CBOT mini-sized Dow.

How to use the Value Area & the 80% Rule in CBOT mini-sized DOW futures trading to identify intra-day entry and exit signals.

We use 30' (30 minute) bars to qualify our potential trade opportunities.

For example, 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 (depending on market conditions as much as 80%) of completely filing the value area. 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 80% Rule criteria (see the example below).

We don't blindly follow the above. The trader who enters a value area trade without evaluating other market conditions has little better than a 50% chance of seeing the value area filled. The power of the using the 80% Rule lies in the further evaluation of the current market variables such as value area size, price extension and market internals.

In the illustration of the 30' bar chart of the CBOT mini-sized DOW (YM) above, you can see the market opened inside the value area, and got out of the denoted purple value area in the afternoon. 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 astute traders look for, and the market continued straight down completely filling the value area.

Want to know more? Submit a question to the author of this article (please include "Likos Strategy" in question).

Q: Mark,do you give any weight to the Dow Futures trading between 8:30 and 9:30 Eestern on the chart for the 80% Rule?

A: Good question. The 80% Rule applies to the day session activity only. It may give similar indications in hours of trade outside the regular session trade, but none I'd rely on for trade decisions. Mark

Q: Mark, do you use any other indicators in conjuction with "the 80% rule"? What is the significance of using 30 min. bars?

A: One can certainly get a better 'handle' on the 80% Rule probabilities by incorporating additional conventional technical analysis, but this is a FLOOR traders technique that was arrived at through the use the use of 30-minute bars utilized in Market Profile, an alternative method of charting price and time activity to conventional western bars or Japanese candlesticks. A good book that addresses this and other Floor traders areas of focus is Mind Over Markets - Power Trading with Market Generated Information by James Dalton. Also see www.cbot.com (select "Market Info" then "Marketprofile") for more on the Market Profile (a lot of great material there). 

About Mark Likos
Mark Likos is a veteran multi-dimensional trader comfortable in any market (Equities, Futures or Commodities), editor and publisher of the prestigious The Likos ALERT!, Founder and Co-CEO of The Likos Letter Group and Senior Analyst for the Live Audio trade group, FireTraders. As a trading educator you may remember Mark from one of his many seminars or presentations across the country, seen one of his many published articles or from his weekly WebTV appearances on Webfn where he is a regular Expert Commentator. Mark's expert commentary is posted along with his Key Support & Resistance Levels at many industry associations, exchanges and trading centers across the country.

His 13-year expertise in short to swing trade analysis is unprecedented in the industry, based on his proprietary combination of both classical technical indicators and floor traders methodologies Mark is able to target his buy & sell picks profitably to exploit the short-term momentum and volatility of the markets. His recommendations are published daily in his advisory (or called LIVE at the FireTraders.com) with clear explanations.

Guidelines that increase the chance of approaching the 80% probability are taught in Mark's mentoring programs and seminars. If you area interested in seeing and hearing the above principals used in actual play, come to our LIVE audio trade radio program at www.firetraderes.com and sign up for a FREE trial.

If you trade CBOT Dow futures and are interested in submitting a strategy for publication on the CBOT Web Site please contact us.

The information in this commentary is provided from sources believed to be reliable, but the Chicago Board of Trade does not guarantee its completeness or accuracy. The opinions expressed within the commentary may change without notice. The commentary was prepared for general circulation and does not have regard for the particular circumstances or needs of any specific person who may read it. Neither the information nor any opinion expressed in the Commentary constitutes a solicitation for the purchase or sale of any futures or options contracts.