The 80/20 Principle is an enormous time-saver. If you spend 10 minutes learning these skills now, it will have an endless return in the future. An example of a great reward: (lifetime saving of time) to risk (5-10 min of reading). The 80/20 Principle is a very effective concept in achieving efficiency. Instead of wasting resources on unimportant tasks, you can focus on core revenue making activities. This principle is one of the essential concepts in modern-day business.
This idea will discusses what the 80/20 Principle means, why it's effective, and how traders can benefit from it. Instead of scanning, I highly recommend reading this entire idea & P2. Information overload is rampant in our modern society. We are not used to focusing on any topic for longer than 30 seconds.

The main point is that the numbers are highly unbalanced. Humans tend to think that each unit of effort, or resource , has (almost) equal importance in achieving success. But the 80/20 Principle clearly explains the numbers are highly skewed. The probability theory explains that it is, “virtually impossible for the 80/20 Principle to occur randomly.”


Traders can use the 80/20 Principle as well. In fact, there are many ways traders can apply the analysis from the 80/20 Principle. The 80-20 rule not only holds true for the analysis of our P & L account, but also for a wide range of topics.

Number 1: trading performance. Traders can analyze these relationships:

Are the majority of losing trades caused by the same mistake?
Are the majority of losses coming from a few trades?
Are the majority of losses coming from a small number of days?
The same questions can be asked for profits and winning trades as well.

Number 2: individual performance (personal effectiveness). Traders can analyze these relationships:
How much time is spent on each task and how much benefit does it bring?
What are the crucial tasks in my trading that lead to the most results?
What actions are the most beneficial for my results?

Number 3: the market. Traders can analyze these relationships:
80% of the time the market is in the middle of a move (not reversing), whereas 20% of the time the market is forming a top or bottom.
80% of the time the market is not trending, 20% of the time it is trending;
80% of the market moves are noise, 20% of the market moves are an actual signal;
80% of the time the market is in consolidation and 20% of the time it is in an impulse.

Number 4: strategy performance. Traders can analyze these relationships:
Do the majority of the trading opportunities occur at the same points during the strategy?
Are the majority of my wins generated by a minority of the same entry type?
Do the majority of my filters have a very small impact on the performance?
Does a minority of my tools and indicators have the most positive impact on the strategy?

The above questions and ideas are examples. Everyone is highly encouraged to analyze and find connections that benefit them as an individual trader. This is not limited to the above, and many more ideas can be created.

In Trading, it's a fact that most traders trade too much and try to force results by working too hard.

In terms of your trading strategy: Focusing on the above will make you more money - but you'll also reduce the effort you put in. Shift your emphasis to long term trading - and only trade the best signals. By doing this, your workload - and the amount of time you need to spend on your analysis will be reduced.

If you apply the 80 - 20 rule to your trading in the above way, you'll cut the effort you put in. You'll also increase the profits you make - and that's what all traders want! Many people think that the more effort you put in, the better the results you obtain. This is true in many areas of life - but not trading! Here you are paid for being right with your trading signals - that's all.
Also, don't fall for the myth that the more you trade, the better your chance is of having trading success. This is simply not true - because the big trades, with the best ratio of risk to reward don't come around that often.

Focus is the only way anybody can enjoy their tasks, be in the ‘flow’ of things, learn and retain information, and direct their attention to specific, valuable goals.


The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.