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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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Solid article. Being organized and ruthlessly honest with yourself by tracking your Excel or Google spreadsheets can be an effective way to test and implement this 80/20 principle. And knowing that managing risk and losses for the other 80% of your trades (or inputs) is of primary importance so that the 20% can potentially do the heavy lifting as far as outputs.

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Welcome to our community @FuturesOptionsPro Looking forward to your questions and feedback.

Best,
Matt Z
Optimus Futures