Thread by @dmdsplyinvestor

The 80/20 management rule in trading. 80% of the effects come from 20% of the causes. In trading, 80%(big portion) of the profits come from 20% of the good trades. Do not take these numbers literally. 1/n

If you are a discretionary trader, you need to focus on those 20% good trades and the reasons behind it and try to make this number bigger. For ex: if 20% of those trades were breakout trades, then you need to trade more breakout trades to make those big winners. 2/n

If you were a system trader, you can't do much if your system already has a very good expectancy. You just need to have the right mindset to go through the drawdowns and wait for those big winners. Remember, there is no trading technique/system that will be 100% profitable. 3/n

Let's take an example of 100 trades in Nifty.

1) 40% of these were losers but losses were controlled at an average of 20 points - 40*20 = -800 points
2) 40% of these were moderate winners with an average of 40 points - 40*40 = 1600 points 4/n

3) 20% of these were big winners with an average of 100 points - 20*100 = 2000 points

Net points = -800+1600+2000=2800 points

Here, 20% of the trades made up for 70% of the profit, which means you had to sit tight for 80% of your time just waiting for the fish to bite. 5/n

This mindset to sit patiently and to accept those small losses without affecting you is the most critical thing in trading.

So, develop the right mindset before you get into deeper losses. One book that I'd recommend to read is "Trading in the zone" by Mark Douglas 6/n

#Investing #Trading #tradingpsychology #WinningMindset #profitabletrading #Tradinginthezone #Markdouglas #Bigwinners #smalllosers