Trading 80:20 principal – Boosting profits

Trading   80:20 principal – Boosting profits

Most of us loose money in trading. while 95% loose money and 5% makes money. Its true. Understand how to become 5% of the trader.

What is 80:20 Principal ?

The “Pareto principle” of the “80/20 rule” can be applied to the trading or speculation also. This principal is now applied successfully in business studies, sales, economy and many other theory. Now lets understand how how this 80: 20 rule can help you to optimize your trading and boost your profits.

As per wikiipedia the Pareto principle  is a a principle which emphasis that that, roughly 80% of the effects come from 20% of the causes. IT happens to our life or business even on trading. Just for example, in any business it may happen that the  80% of your sales come from 20% of your clients.

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80:20 principal In trading (Speculation)

The trade system profitability depends on discipline & emotionless and proven system  based on proper money management principal. This is the essential for any trader’s success. To make money in trading, you may not have to have the most expensive or accurate system in the world.  But you need to have a good system good system which can executed with discipline by using money management principal. 

Summary- Learning from successful trader  

80% of  trading profits comes from 20% of transactions, these 20%  are the large

Trades & called as as “trends”. Few Learning are –

  1. Small No of winning Trade (20% of profit gives him all the profit)
  2. Large winners ( interms of Value of money)
  3. Small losses ( in value terms)

 

Generally, small winners and the small losses will balance each other out, and you basically earn from the large winners.  These large winner make more than  80% of your trading profits.

Analysis of Successful trader

 We have found following trade analysis of a successful trader. Where he makes only 5% of the trade as big profitable trade. The success ration is around 30% only, but still he is able to make money. He catch the big trade and continued the trade with the trend. Where, he make small loss to profit or less trade (80%)

 

Analysis of Successful Trader trade
% trade Value
Large Profit 5% 5000
Medium profit 15% 2000
Small loss to profit 40% 1000
Loss trade 40% -4000
Total 4000

Conclusion

Few learning are –

  • Spend much more time on trading psychology (or strategy ) &money management  aspect rather than on researching new trading systems and ideas (Strategy is key to trading success).
  • Make sure that your strategy (trading) should be able to take advantage of big moves.

Try to reduce 80% of the trading losses by avoiding emotional or impulse trading & continue to hold profitable position and cut loss making trade. 20% of trade gives 80% of trade.

 

Few Reff-

http://www.nasdaq.com/article/the-8020-rule-cm162764

http://www.goldenwire.com/323/the-8020-rule-trading/

 

 

 

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