Keep Calm and Don't Move Your Stops.....

A little risk management saves a lot of fan cleaning!

The Purpose of Life is Joy!!

The Pareto Principal

Basically its the 80/20 rule. Beyond this the law of diminishing returns sets in....the more effort you put in, the less reward you get for the increased effort. Most gains by then are incremental at best and are pretty hard won. 

I've seen this play out over the years.....20% of the people in a company do 80% of the work and carry the remaining 80% of the people on their backs....this may seem harsh but it really does work this way. Another example is the military, about 20% or so actually fight. The rest support....now this is pretty extreme and the 20% really do need the 80% to support but I suspect the 80% could be reduced by half and still get the job done. 

In a charitable organization, 20% of the donor's supply 80% of the funding. I've seen it with my own eyes....in some cases its 90/10....or worse. 

In my mortgage office, approximately 80% of our revenue came from 20% of our people. And to make it worse, the other 80% of the people were NOT worth the extra effort required to manage them to contribute their 20%. I'd have been better off firing those people, reducing the office square footage and the associated expenses and I would have made up the lost 20% just in expense reduction alone. 

Tim Ferris of www.fourhourworkweek.com fame said the 80% is enough if you only have to expend 20% of the effort. 

The idea here is to identify the essential 20% and only do that. 

Which leads me to my real statement:

Trading is about minimal effort for maximum results.

Basically it boils down to this; I want to take the minimum number of set ups every day to produce the maximum number of ticks I can in my allotted trading hours and perform the absolute minimum amount of trade management possible...which most of the time is NONE. 

What does this mean in practice? It means KNOWING what the 20% actually is. This is the set of conditions required for me to take a trade. It also means WAITING for those conditions to appear and it means DOING nothing until they do. It means FEWER trades, not more. It means LONGER hold times not less (even for scalpers...just wait until the trade plays out). 

At the end of the day, I need to look back at the chart and basically KNOW that I expended 20% effort for 80% reward. I know this is speaking in large generalities but using a recent trading day as an example, I worked pretty hard that day....more trades than needed. More trade management than was needed, more size than was needed and more stress and worry than was needed. And it produced the expected results....a losing day. However, operating with the 80/20 rules in mind, there would have been two trades and no trade management producing around 40 ticks or so of profit with the correct size. This would have prevented the worry and stress of trying to do more than was necessary. 

Further, more time spent at the charts is not necessarily a good thing. Focused effort for 20% of the time we spend sitting in front of the charts in real practice, in "wishing" and in live trading would produce 80% of the results we desire. If we spent less time "reviewing, less time trading and less time "wishing", results would improve dramatically I believe. 

So I am going to start living by the 80/20 rule. Expend a focused 20% effort for 80% of the results I am looking for. And in truth, that 80% I am quite sure will be more than the 100% I am getting now. I'm sick of this being so darn difficult to do. Its really about just doing what I know to do. And let the rest just sit there as noise or decoration. 


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