The 80-20 Trader

How To Trade Less To Make More [image] One of my 12 month books is the 80/20 principle by Richard Koch… It’s one of the 12 books I read every year…1 each month and then implement. These books have lessons for me that I need to hear over and over…so instead of reading every book in the world, I focus on the few with things I need to implement… But I was at the library with my kids and picked up the 80/20 manager, also by Richard Koch…he really is milking this 80/20 thing… 80/20 is the Pareto Principle which you probably have heard of before. William Pareto was an Italian economist way back when who discovered while doing some research that 80% of the wealth in Italy was controlled by 20% of the people. Over time, others have found a similar phenomena in other aspects of nature and life. For example, if you own a business there is a great chance that 80% of your profits come from 20% of your products. Also 80% of sales come from 20% of your customers…and on the flip side, 80% of problems also come from 20% of customers but usually not the ones that bring in the revenue. No matter what work you do…80% of your results are from 20% of the tasks. It really is counter intuitive…we are told since birth to diversify…don’t put all your eggs in one basket…you gotta protect those eggs…but what if all the eggs are not worth protecting? Koch has written several books about this and has tons of examples…but the best examples are to look at your own life and see for yourself how the ratio works in your life… 80% of your good times, happen with 20% of your friends. 80% of your fights happen with 20% of the people who know. And on and on…. But then, when you dig a little deeper…it gets even more freaky. It is not just 80/20….but 90/10…and 95/5….and even 99/1. Just like the 1% who now control 99% of the world’s wealth. It starts with 80/10 but then gets more and more condensed. And it has been this way for generations. This is an undeniable fact of life…Everything is not equal and never will be. I bet you didn’t know this applied to the markets too. In the 20 years from 1990 to 2010 – the s&p 500 index grew an average of 8% a year….but if you take out the gains of the top 10 stocks (which is 5% of the index) …the average was actually negative an average of 3.3% a year! So if you wanted to beat the index, just buy the top 10 stocks…not the whole index and you will do much better. According the FactSet, In 2021, the index had a banner year up 28.7%.. pretty good right? Guess what? Just 5 stocks made up 31% of that gain. In 2020 the index was up 18.5% and the top 5 stocks or 1% of the index, made up 62% of that years gains! So now matter what you apply this too…look for the instances that bring you the best results…and focus on those.. How do we apply this to trading? Well it’s like a say all the time…focus on what works…focus on less. Not more. It’s like Richard and I are kindred spirits…we both keep talking about this but very few listen…wait a minute….oh jees… That’s it…no matter how many times I say it…only 20% or less of the people who listen actually implement this…haha Crazy right… Ok so let’s do this… Go through your trade log…all the trades you have done over the past few years… And if you don’t have a trade log and do not keep records of your trades…shame, shame…you are missing out on a treasure trove of data that can make you better. Anyway, check to see what ratio appears… 80% of your profits will come from 20% of your strategies. So you need to focus on the strategy or strategies that you do best and ignore the rest. 80% of your losses, will come from 20% of your trades…so you need to know how to limit the losses on those trades…why did the loss happen? Find a way to fix it. 80% of your wins, will be on 20% of the symbols…so you don’t need to trade every stock under the sun. Focus. Specialize. Remember the principle. 80% of your losses, will be the result of 20% of your mistakes…every mistake is not equal..just get rid of the biggest ones. To get better…niche down…not out…. trade less...not more…. And always trade with the odds in your favor. Allen Sama [image] Not sure what to do next? Follow these simple steps to get moving. STEP #1: Get The Book[Passive Trading: How To Generate Consistent Income From The Stock Market]() Step #2: Online Training To Take You To The Next Level.[Passive Trading Formula]() | [How To Trade Oil Options](=) | [Master The Iron Condor]() | [Option Genius Podcast]() Step #3: Looking For Trades? [Option Genius Advisory]( | [Simon Says Options]( | [Weekly Trading Systems]() Step #4: Connect With The Community[Option Traders Alliance Facebook Group](=) | [Facebook](=) | [YouTube]( Step #5: Want Our Personal Help? 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