80/20 Rule!

There is an old saying that dates back to the early 1900's that was used to describe the distribution of wealth in society. This saying states simply that:

20% of the people will own 80% of the wealth!

Since then much analysis has been done in relation to this principle, and it has been determined that this formula affects many aspects of our society.

Broken down in simple form, it basically means that in any endeavour, a small few (20%) are essential to success, while the majority (80%) are unnecessary or 'trivial'.

This principle has had a huge impact on how many businesses function. For instance, managers realize that 20% of their personnel will, essentially, do 80% of the main workload. In a sales environment this is interpreted in a few ways: That only 20% of sales people will do the 80% of work necessary to be successful, but also that 20% of their clients will generate 80% of their business.

How does this relate to Forex and trading in general?? Think about it - if only 20% of us will do the necessary hard work to succeed (and this number is theorized to be much, much lower), which side of the fence do you want to be on? It has also been stated that for the majority of successful traders, 80% of their generated wealth is created from only 20% of their trades. Success is not a given in any endeavour - it must be EARNED! Hard work, persistence, an open mind and in my opinion the most important - THE WILLINGNESS TO CHANGE are all necessary components to success.

Why is it that the majority of truly successful people in any given field carry very similar personality traits?

Think about how much baggage we bring to the table when faced with a new endeavour? Preconceived notions, ego, false information, hopes, fears, past experience, the inability to listen, the need to always be right - the list goes on and on! Only the willingness to change can help us to overcome these limitations and put us on the path to success!

Here's to stomping the crap out of the 80/20 rule, and rolling the founder over in his grave!!!

... and here's to 100% of us having the endurance to find success in life!!



D.

Good Article, thanks for sharing

I believe there's a factoid about the market ranging about 80% of the time, as well. Hmmm...

80% and 20% pretty much works for most things in life.


80% of my trades are winners, but that 20% costs me more than my winners.

( Actually I'm breaking even but yeah LOL )

Very well said. I will definitely read and think about this.

Good post D.
Looking back on my entry into FX i do get a bit ruffled around the edges when i recall the "easy money" hype that lured me into this profession. Unfortunately i was duped into a firm (now defunct based in Canada) that was also MLM based but i didn't know that when i grabbed the bait. ForexFactory has been the BEST place to hang out during the learning process. I agree that this is not an easy profession, and that it takes much personal commitment to truely succeed.

: ) Thom

WHTenn,

NP at all WHTenn. It is very easy to get caught up in the hype (as Accrete attests to) and much harder to find out what is truly necessary to succeed at this. Personally, I am getting there slowly (I believe), and there is always room for improvement & more knowledge so I keep my eyes & ears open.


Brentmack,

Very true! It is amazing, actually, at how much this simple rule affects so much of our lives! It's not 100% of course, but then the only thing in the world that is is death & taxes


Turveyd,

Lol - now we just have to find a way to turn those figures around!!!


Fxpinoy,

Thanks!


Accrete,

Yes I tend to look at some of my past decisions with some displeasure as well. But then I think of the fact that I wouldn't be where I am now if I hadn't had run through those hoops!!


Take care guys & happy pipping!!



D.

In a sales organisation that I maintain a modest interest in that these days runs better without me than with me 30% of the sales people produce 70% of the business. People come and go. But this remains consistent.

It is also why only 2% of people will retire financially independant. That is to say they can do exactly what they want, when they want and money does not come in to the equation. That is not to say the 98% are prats. Of course not. 5% from the 98% are comfortable but still need to consider their financial status when making a major purchase. Or risking 100k in forex. But people have different skills which society pays differently. The most important job is that of parents. But that's another story and not relevent here. Everyone, have a great week.

nice article, it reminds me of My few Vs many theory

Hi all,

WoW: Yes I have heard the 70/30 theory as well (mainly used in sales). The 80/20 is still widely used but I think can be adapted to fit a lot of different fields. I worked as a sales rep for a debt refinancing company. The 80/20 applied more with this company... people definitely 'came and went'

Don Perry: Care to share your Few vs. Many theory??

Take care guys,

Derek

I can see Spock on the other side of the glass wall..."The Needs of the Many outweigh the Needs of the One". grin.

To much time on my hands now that i'm trading off the longer term charts.

: ) Thom

You need to take up fishing, Thom, I haven't seen you post so much for ages.
LT charts are great, aren't they??

Yes I am trying to pull back on my shorter-term trades as well. It is akin to shooting down the autobahn & hitting a brick wall in my opinion

Something to think of:

I have read that less than 1% of intraday traders succeed and are profitable.

Position trading (long-term usually over 3-5 days) on the other hand has about a 25% success rate!

I would prefer to start out as part of the 25%, and then open a second account to play & see if I can make it into the 1%.

D.

I think the real balance is closer to 10% - 90%. And in forex even harder, about 5% - 95%.

here is an exercise that I suggest all of you try that may help you to dramatically increase your performance. It did for me.

If you keep good trading records (most successful traders do) to analyse your trading performance, (ie, different setups you use and their effectiveness). You'd probably find out that only 20% or so of your trades are giving you most of your profit. Try to immediatley eliminate the other 80%. Your performance should improve immediately. You will find that it is very hard to do but give it an honest shot.
The percentages are rough estimates, but when I fist decided to do this on an ongoing basis with continuous analysis it did and still does wonders for me.

Hi Privacy,

Good post! And hence the necessity to keep track of all trades and analyze regularly (treat this like a business!!) Tracking performance of your system, pairs, time of day, etc can go a looooong way to weeding out the losers!!

Just my .02c

D.