Forex money management is the hardest part of Forex trading and most traders just make mistakes that doom them to failure. Here we look at how understanding the 80 / 20 rule and using it in your trading system can increase your profits with less risk…
The 80/20 rule is simple and states:
That a small number of causes (20%) are responsible for a large percentage (80%) of effects. The principle was named after the Italian economist Vilfredo Pareto, who pointed out that 80% of the income in Italy is received by only 20% of the population. The value of the Pareto principle in life and forex trading is that it tells you to focus on the 20 percent of your trading that really matters.
Most traders simply trade too much and the 20% that matter are only high odds trades – get rid of marginal and low odds trades and only trade high odds.
The fact is that many traders think that the more they trade, the better and the more likely they are to succeed in forex trading. Most try to trade on market noise and try forex trading or scalping – but they are doomed to fail and perish. Trading profit does not depend on how often you trade, as you are only judged on the correctness of your trading signal.
If you trade 100 times or twice, all that matters is the amount of money you put in the bank from your market time.
I know traders who trade just a few times a year and earn anywhere from 100 to 200% simply because they wait for high-probability trades, hit them, and hold them.
Trading less, more efficiently and more profitably.
Look at any new traders account and they will over trade and if you make the mistake of taking margin trades you will lose.
Money management is all about protecting your account equity, and if you only focus on the high odds, you’re going to increase your overall profit potential.
The 80/20 rule works in forex trading as it does in all areas of life, and when you use it in forex trading, you focus on making money, which, after all, is what forex trading is all about. currency.
So think about it, apply it, watch your profits grow and the risk of your account capital decrease, and be on your way to forex trading success.