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Technical Analysis Trading Strategy: DAX 80/20 Trade

DAX Value Area trade

The ‘80/20’ trade is perhaps a misleading name and should rather be called the Value Area trade. The criteria for the trade are that a market opens outside of previous day’s Value Area (VA) and then trades 2 TPOs back inside, once this has happened then the market should trade through value to the other extreme. This pattern is a result of participants failing to continue a move to shift value away from its current position and hence liquidating positions as the market re-establishes value in the same place as the previous day.

With such simplistic criteria, context becomes critical. In this case DAX was opening below value but within a larger range so not showing breakout characteristics. Furthermore, the prior day’s VA was poor so ‘needed’ to be traded back through. These additional pieces of the puzzle are what differentiates between the 80/20 trade that works and the one that does not.

This Axia Futures daily debrief considers the premise of the trade but also how trades can be executed making use of the information gained from initiative order flow in the cash session as well as profile reference points, in order to find passive entry as well as breakout trades based around the broader theme of the 80/20 trade.

A range of Profile Strategies are explored in the Volume Profiling with Strategy Development course along with methodologies of how to develop strategies around those Profile principles.

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