Pareto Rule in Trading

80-85% people lose money in the market, its only 15-20% of people who consistently earn money here. We all know that market is a zero-sum game. Someone’s gain is someone else’s loss. So, the people who are winning in the market are making a lot of money as they get to keep money from 80-85%.

Seems like the Pareto rule applies in the market as well. Pareto rule is also known as  80/20 rule states that roughly 80% of the effect come from 20% of the cause. This can be seen in almost every aspect of life. For e.g. 80% of sales come from 20% of clients, 80-90% of world’s wealth is held by less than 20% people in the world. 20% of workers generate 80% of results etc. There is numerous example of Pareto rule around us.

What can be our take away from the Pareto rule? There are two things – One is that 80% of our losses are caused by 20% of Trades.

Second learning from Pareto rule is that in order to move from trading loser 80% to winner 20% you need to get better in terms of knowledge, discipline & habits.

Talking about point number one, If you look at your trading history, you’ll see that there are few big losses which account for 80% of overall trading losses. If we plug these big losses, we will surely do our self a world of good. This will be one giant step towards making trading a successful business venture. Next time if you see a losing position just cut it and forget it. Give more time in analyzing your trading strategy rather than watching your losing position give you more pain.

Second learning from Pareto rule is quite important. Much more important than anything else. It is that if you want to be a profitable trader then you must keep learning and getting better. If you look at any sports, for example, say Swimming, a person who comes first is only 1/100th of a second ahead of the next person but all the accolades & awards go to the person who came first even though he was just marginally better.

In trading just like sports, all that counts is that you need to be slightly better than the opponent and chances are you will be winner 80% of the time.

Knowledge of the subject and being trained by a mentor will give you the edge that the other 80% people don’t have. If you educate yourself and become slightly better than the opponents then your probability of being right in a trade will go up by 80%.

A small edge is all you need to tilt the scale in your favor. This small edge over time becomes a huge advantage.Scientists refer to this effect as “accumulative advantage.” What begins as a small advantage gets bigger over time.

Now, how do you develop this edge? The answer is simple to keep learning and educating about the market. Trading is a lot more than Buying Low and Selling High. If you educate yourself earning from that 80% who don’t have the edge becomes a lot easier.

Our courses like Learn & Earn and Techno Derivative will help you learn more efficient ways of trading the market. A small difference can prove to be quite big in long run. You must become better than the competition in order to earn consistently in the market.



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