{"id":11645,"date":"2016-06-14T14:09:05","date_gmt":"2016-06-14T21:09:05","guid":{"rendered":"http:\/\/www.tradingheroes.com\/?p=11645"},"modified":"2025-07-30T03:03:52","modified_gmt":"2025-07-30T10:03:52","slug":"80-20-rule-trading","status":"publish","type":"post","link":"https:\/\/www.tradingheroes.com\/80-20-rule-trading\/","title":{"rendered":"How the 80\/20 Rule Can 2X Your Current Trading System"},"content":{"rendered":"

\"Blastoff\"<\/p>\n

When you buy something through one of the links on our site, we may earn an affiliate commission.<\/div><\/p>\n

We all know Pareto principle<\/a> or the 80\/20 rule<\/strong> and how powerful it can be for everything from time management<\/a> to language learning.<\/p>\n

I you have never heard of it before, then it basically says that 80% of your results will come from 20% of your efforts.<\/p>\n

Approximately.<\/p>\n

But\u00a0does it work in trading?\u00a0You bet it does!<\/p>\n

In this post, I'll show you how this simple tweak can help you improve what you are already doing and give you a game plan to figure out if it is the right strategy for you or not.<\/strong><\/p>\n

I will also show you my own results and how to implement this strategy, when it seems like you can't.<\/p>\n

Ready? Here we go…<\/p>\n

How the 80\/20 Can be Used in Trading<\/h2>\n

OK, so the first thing we need to do is\u00a0define where we will be using the 80\/20 rule<\/strong>.<\/p>\n

Should we\u00a0cut our screen time to only 20% of our current total? Should we only trade 20% of the available currency pairs<\/a>?<\/p>\n

Perhaps.<\/p>\n

But what I'm talking about is splitting up our trade entry into two parts, with two different profit targets.<\/strong><\/p>\n

The first profit target will be 80% of our total position, while the second part will be 20% of our total position.<\/p>\n

Don't think that's possible?<\/p>\n

Watch this…<\/p>\n

A 80\/20 Trading Example<\/h2>\n

This example is an Outside<\/a> (or Engulfing) Bar setup on the $GBPAUD.<\/p>\n

Here is where the bar printed nicely on a support level. If you want to follow along at home, this the H4 chart on April 20, 2016.<\/p>\n

Don't you wish that they were all that sweet? \ud83d\ude42<\/p>\n

I'm only showing you this ideal entry because it illustrates a good point. In reality, not all trades will work out this well.<\/p>\n

\"Outside<\/a><\/p>\n

When you enter the trade, you have several options. Here are some of the common ones:<\/strong><\/p>\n

    \n
  1. 1 position, 1 profit target<\/li>\n
  2. 2 positions (50\/50), 2 profit targets<\/li>\n
  3. 2 positions (50\/50), 1 profit target, 1 trailing stop<\/li>\n
  4. 2 positions (80\/20), 1 profit target, 1 trailing stop<\/li>\n<\/ol>\n

    So which one works best?<\/p>\n

    Obviously, there are many other variations, but those are the ones that people commonly use.<\/p>\n

    Here's how they would have performed, risking 2% per trade, on a $1,000 account.<\/p>\n

    To make the calculations easy, let's say that we are using nano lots<\/a>, so we can get the exact risk that we need. Also, 1 nano lot will be worth $0.001 and the spread\/swap are negligible and there is no slippage.<\/strong><\/p>\n

    In real trading, you can use nano lots to get this kind of risk customization, but the pip values will differ by pair and time of day.<\/p>\n

    The spread\/swap\/slippage will factor into your profit and loss, but if you are using reasonable leverage, it won't be much, if you are trading during active hours.<\/p>\n

    Scenario #1: 1 Position, 1 Profit Target<\/h3>\n

    This is the most basic entry\u00a0and one that you have probably used before.<\/strong> In this example, using a 1R (or 1X the risk) profit target would have resulted in a 2% gain, or $20.<\/p>\n

    The stop loss was at 143 pips and the take profit was at 143 pips. So you would have used 140\u00a0nano lots.<\/strong> \u00a0The calculation\u00a0is as follows:<\/p>\n

    $20 (total risk)<\/strong> = 143 pips (risk) X 140 nano lots X $0.001 (\/nano lot\/pip)<\/p>\n

    Here's the entry (blue), stop (red) and take profit (green) lines.<\/p>\n

    \"1R<\/p>\n

    Cool. But look at all that sweet profit you missed out on!<\/p>\n

    The upside of having a 1R profit target is that you will win often.<\/p>\n

    Some trading methods have as much as an 80%-90% win rate on a 1R profit target.<\/strong><\/p>\n

    The downside is that your account balance can go up and down a lot because you don't take advantage of the big runs, so the losses can have a bigger effect on your account.<\/p>\n

    What happens if the\u00a010%-20% of your losses come all at once?<\/p>\n

    That can hurt and really mess with your head.<\/p>\n

    So a good balance of a good winning percentage and the occasional multi-R trade is ideal.\u00a0<\/strong><\/p>\n

    …which brings us to the next\u00a0entry technique.<\/p>\n

    Scenario #2: 2 Positions (50\/50), 2 Profit Targets<\/h3>\n

    \"Two<\/p>\n

    Now, if we had two profit targets, risking 1% on each (or 70 nano lots), that might help us catch more profit. In this case, it would have worked, and we would have made the following:<\/p>\n