(06/08/12) The Rule of 3, 5, and 7 in Trading (2024)

In this video, an interesting quirk of the markets is explained, with an eye on how traders can take advantage.

I should start by saying that this really isn’t a rule, as much as it is a “rule of thumb.” Meaning it doesn’t always work (does anything always work in trading?) but it works enough that it is something to which you should pay attention.

The strategy is very simple: count how many days, hours, or bars a run-up or a sell-off has transpired. Then on the third, fifth, or seventh bar, look for a bounce in the opposite direction.

Too easy? Perhaps, but it’s uncanny how often it happens. And sometimes the simplest trading ideas in trading make the most money.

See Also
80% Rule

Here’s a video that explains more and gives a few examples with recent charts:

Hubert Senters is co-founder of TradeTheMarkets.com.

(06/08/12) The Rule of 3, 5, and 7 in Trading (2024)


What is the rule of 3 5 and 7 in trading? ›

The strategy is very simple: count how many days, hours, or bars a run-up or a sell-off has transpired. Then on the third, fifth, or seventh bar, look for a bounce in the opposite direction. Too easy? Perhaps, but it's uncanny how often it happens.

What is the 3 5 7 rule in stocks? ›

What is the 3 5 7 rule in trading? A risk management principle known as the “3-5-7” rule in trading advises diversifying one's financial holdings to reduce risk. The 3% rule states that you should never risk more than 3% of your whole trading capital on a single deal.

What is the 3 5 7 rule? ›

That information is as follows. For surfacing material, three samples shall be collected from hom*ogeneous areas of less than 1,000 square feet, five from areas between 1,000 and 5,000 square feet and seven from areas greater than 5,000 square feet.

What is the rule of 7 trading? ›

Rule 7 – Page 9 of 22. (c). If the Dow Jones Industrial Average reaches Level 3 below its closing value on the previous trading day, trading in stocks will halt on the Exchange and will not reopen for the remainder of the day.

What is No 1 rule of trading? ›

Rule 1: Always Use a Trading Plan

You need a trading plan because it can assist you with making coherent trading decisions and define the boundaries of your optimal trade. A decent trading plan will assist you with avoiding making passionate decisions without giving it much thought.

What is the 70 30 trading strategy? ›

The strategy is based on:

Portfolio management with 70% hedge and 30% spot delivery. Option to leave the trade mandate to the portfolio manager. The portfolio trades include purchasing and selling although with limited trading activity.

What is the 11am rule in trading? ›

It is not a hard and fast rule, but rather a guideline that has been observed by many traders over the years. The logic behind this rule is that if the market has not reversed by 11 am EST, it is less likely to experience a significant trend reversal during the remainder of the trading day.

Which trading strategy has the highest success rate? ›

Indicator-Based Directional Trading

This strategy uses an indicator to determine the direction of the trade. The indicator provides a clear signal when it's time to enter or exit a trade, making it easy to work with. Traders who use this strategy can expect to see consistent results and high success rates.

What is 90% rule in trading? ›

The 90 rule in Forex is a commonly cited statistic that states that 90% of Forex traders lose 90% of their money in the first 90 days. This is a sobering statistic, but it is important to understand why it is true and how to avoid falling into the same trap.

Where did the 3 5 rule come from? ›

The Three-Fifths Compromise was reached among state delegates during the 1787 Constitutional Convention. It determined that three out of every five slaves was counted when determining a state's total population for legislative representation and taxation.

Who made the 3 5 rule? ›

After proposed compromises of one-half by Benjamin Harrison of Virginia and three-fourths by several New Englanders failed to gain sufficient support, Congress finally settled on the three-fifths ratio proposed by James Madison.

What is the 80-20 rule in trading? ›

In investing, the 80-20 rule generally holds that 20% of the holdings in a portfolio are responsible for 80% of the portfolio's growth. On the flip side, 20% of a portfolio's holdings could be responsible for 80% of its losses.

What is the 80% rule in day trading? ›

Definition of '80% Rule'

The 80% Rule is a Market Profile concept and strategy. If the market opens (or moves outside of the value area ) and then moves back into the value area for two consecutive 30-min-bars, then the 80% rule states that there is a high probability of completely filling the value area.

What is the 9 20 trading strategy? ›

One such strategy that has gained traction among experienced traders is the 9:20 AM short straddle. This dynamic approach involves selling both a call option and a put option with the same strike price and expiration date, allowing traders to potentially profit from market movement, regardless of the direction.

What is the 5 3 1 rule in trading? ›

The number 5 stands for choosing 5 currency pairs that a trader would like to trade. The number 3 stands for developing 3 strategies with multiple combinations of trading styles, technical indicators and risk management measures. The number 1 guides traders to choose the most suitable time for trading.

What is the 3 30 rule in trading? ›

The 3-30 Rule: One interpretation of the "3.30 formula" could be related to the 3-30 rule in the stock market. This rule suggests that a stock's price tends to move in cycles, with the first 3 days after a major event often showing the most significant price change.

What is the rule of 3 in the stock market? ›

This is often used as a guideline to determine if a breakout or breakdown is valid. The price should move at least 3% above or below the respective level for the move to be regarded as valid.


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