The 80 / 20 rule is a simple rule which applies in many areas of life and is frequently used in business and can be applied to currency trading and if you apply it correctly not only will you make more money from your currency trading strategy, you can do so with less effort which all traders want to achieve so let's look at the rule in more detail.

The 80 – 20 Rule

The rule states that small number of causes (20%) is responsible for a large percentage (80%) of the effect and the rule takes its name from the Italian economist Vilfredo Pareto, who observed that 80% of income in Italy at the time, was earned by just 20% of the entire population. The value of the Pareto Principle currency trading is simple:

80% of your profits come from 20% of your trades and the rest (80%) give you just 20% of your profits.

Trading Frequency and Effort do Not Mean Bigger Profits!

Most new currency traders make the mistake of thinking the more they trade the more money they are likely to make but there is no correlation between trading frequency or the effort you put in to your trading and the profits you will make. The day trader or scalper who wants to be in and out the market, is simply trading the market noise, takes low odds trades and loses.

Many traders who trade just a few times a month and make between 100 - 200% just simply because they focus on high odds trades only and hold them – they make more money with less effort and that's something all traders want to achieve.

Use the Rule to Reduce Risk and Increase Profits

Every successful trader knows that strong money management is the foundation which all good trading systems are built upon and to win at currency trading you must hold and preserve your equirty during periods of draw down. if you focus on high odds set ups only, you are going to increase your profit potential overall as you will have less draw down and bigger profit potential.

Final Words

The 80 / 20 rule works in Forex trading just as it does in many areas of life and if you apply it you will reduce the time you spend on your trading and make far bigger profits which is something all Forex traders want to achieve.