There is a simple idea in when it comes to trading Forex or indeed other markets, that a number of experienced traders have suggested, which claimed will, if implemented correctly is, grant the trader a much higher probability of success than if one was to ignore it.
Called the 80/20 trading standard, this bit of advice describes a technique by which larger profits can be earned as a result of taking large, but very calculated risks, and trading the market in a completely different manner than that in which it is typically traded. If you are not already familiar with the 80/20 standard or rule, what it means is that 80% of your trading profits will come from 20% of your trading efforts. This rule not only applies to the Forex market, but also to the many different areas of finance, as well as to business.
The way that profits are earned in Forex is by trading in the right direction, and how often currencies are traded during the course of a given day, has very little to do with making money. Small profits can be earned over and over again though frequent day trades, moving in the right direction. By the same token, executing the correct trades when applying the 80/20 standard, results in profiting, with the difference being in the number of trades placed throughout the day, week, month or year, being considerably less. The focus here is based upon targeting the longer trades, which will earn you a considerably larger profit per trade, than the shorter trades will. In other words, if you want a “bigger piece of the pie”, it’s time to look at the higher-odds, longer term trades, while buying and selling less frequently.
To make it clear, applying the 80/20 standard to Forex trading, simply translates into cutting your trading frequency back, and trading only high odd setups. The definition of a high odd setup varies, as the trades that you will jump into, are relative to the amount of money that you are willing to risk. A good general example of high odd setups that would be worth trading, are trading opportunities that are based on trading breaks due to support of resistance, which are considered important by the markets. It is these trading breaks that will generate the valuable high odds trades. When applying the 80/20 rule, the common wisdom of risking 2% per trade does not apply. If you make the decision to go for the higher odds trades it is advisable to risk up to 20%. Once you enter a trade, you are going to want to load the trade up with as much money as you can risk, hopefully reaching that 20% threshold. There is a good chance that the resulting profits will be substantial, provided that the trade entered has been well examined.
The 80/20 standard could be a very logical rule of thumb by which to trade with, and traders have successfully completed many trades based on it. It is important to remember to only trade the best setups when using the 80/20 rule, and when you do spot the right setups, do not let fear keep you from funding them with as much money as you can afford. Milking these high odds trades for all they’re worth is the way to go!