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The 80/20 Rule of Trading | What the Pareto Principle Teaches Us In Terms of Outcome Expectations

Originally published at: https://optimusfutures.com/tradeblog/archives/80-20-rule-of-trading/%20

This article on the 80/20 Rule of Trading is the opinion of Optimus Futures. There’s this curious idea that’s gained traction over the last few decades across several fields and industries including finance. It goes something like this: roughly 80% of all outcomes come from 20% of all inputs combined. What might this look like in regards to your trading success rate? A few examples: 80% of your trading profits might be generated by only 20% of your trades, or… 80% of your portfolio’s profits might be coming from only 20% of your positions, or… Market trends constitute roughly 20%…

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Great article! It’s useful to keep this principle in mind when evaluating your results. I see many traders measuring their success by the number of their winning and losing trades, and it is quite an inaccurate way of looking at it.

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