Keystone's 80 20 Rule

A tool worth monitoring for all trades is Keystone's 80-20 Rule.  Not so much a rule, more of a guideline to help navigate trades.  The rule says that when a stock, any ticker, index, sector, reaches the 80 level, the risk-reward is in favor of that ticker moving to the next higher 20 level.  If the 800 level is achieved, then the next higher 200 level is targeted; if the 8 level is achieved, then the next higher 2 level is targeted.  The rule is used for dollars and cents and is used with daily closing numbers.  Are you lost yet?

The guideline is quite simple, examples are the best way to illustrate.

Let's look at the SPX.  The 1280 level was achieved a while back, thus, 1320 would be in play, and was achieved.  Also, the 1288 level was achieved so this targets 1292 which occurred.  Likewise, 1298 leads to 1302.  1308 leads to 1312.  1318 leads to 1322.  1328 leads to 1332.  1338 leads to 1342 and on 2/18/11, 1343 printed satisfying the concept.

Are you getting the hang of it?

As seen above, multiple targets can be set as the ticker reaches a larger whole number.  For example, for the SPX above, once a close above 1280 was achieved, then the 1320's was targeted.  So when the SPX closed above 1318, 1322 was also targeted, along with the prior 1320's target also in play.

Let's look at the Dow Industrials.  11800 led to 12200, 11880 led to 11920, and so forth.  The Dow closed above 12380 on 2/18/11, thus, 12420 would be in play, and on 4/6/11, the Dow closed at 12427 satisfying the projection.

For small caps, the Russell 2000, RUT, has not closed above 880 yet, so 920 is not in play. The RUT high close lately was 854 on 4/6/11, so 848 led to 852, but since 858 was not achieved, 862 is not targeted either.

Finally, a look at gold and silver is in order.  For gold, the close above 1480 places the 1520's in play.  1488 led to 1492 which was achieved over the last couple days.  1498 leads to 1502.  1508 leads to 1512.  1518 would lead to 1522 which is also the target area of the 1520's based on the 1480+ close.

For silver, 38 lead to 42.  41.80 leads to 42.20.  Thus, the 42.20's was an anticipated target to short silver from although it blew past these targets.  As the parabolic move continues skyward, now we had 42.80 leading to 43.20 which was achieved.  The next possibility would be a close above 43.80 which opens the door to 44.20's. Also, the shorter price frames can be monitored such as 43.18 (looking at the streamer right now in fact), leading to 43.22, and, 43.28 leading to 43.32.

Obviously, with tens of thousands of tickers all moving at once, the 80-20 rule cannot play out correctly all the time, but as you watch it moving forward, you will be surprised at how often the guideline hits the targets.

This is only one tool in the tool box, a lonely wrench in a bundle of wrenches, but with all aspects of trading, using Keystone's 80-20 Rule in conjunction with many other technical analyses, and fundamental analyses tools, helps provide an additional edge, increasing the risk-reward in your favor, and that is all a trader can ask for.  Monitor Keystone's 80-20 rule for your trades moving forward.

This information is for educational and entertainment purposes only.  Do not invest based on anything you read or view here or any links connected to this information.  Consult your financial advisor before making any investment decision.