Investing + Trading

Increase Your Trading Results by Implementing Pareto’s 80-20 Rule

Google+ Pinterest LinkedIn Tumblr

Since time immemorial, the golden rule when it comes to working, effort and out-put has always been assumed to be directly proportional. That if you place enough hours into something, you will get rewarded according to your efforts.

From great philosophers and economists, visionaries such as Abraham Maslow and Douglas McGregor, man has always thought that the relationship between time and output is linear in nature, unless you factor in some new constants.

Vilfredo Pareto, a famed economist, joins the leagues of such great thinkers. He is accredited for coming up with the 80-20 rule, a concept he came up with after years of observations made on different scenarios such as land ownership.

Also referred to as “the law of the vital few,” the law states that in numerous cases, nearly 80% of the effects and results come from roughly 20% of the causes. Basically, this law states that 80% of the resultant output is determined by a crucial 20% of the productivity effort, meaning, a large section of productivity is determined by the minority.

This law has managed to transcend time and is nowadays used as the rule of thumb- in terms of economics and marketing. For instance, 80% of a company’s profit is a result of 20% of its client base, similarly, 80% of a company’s profit comes from the 20% time its employees spend working.

As controversial as this law may sound, it is crucial and has numerous benefits, including conditioning our minds to our individualistic levels of production. By doing so, we get to see that we lose a lot of time, hence making us look for ways to efficiently achieve more returns.

For those involved in the trading industry — either forex or stocks, this law will truly come in handy as the golden rule of linearity between time and money, does not apply. By taking this rule to heart, you will soon be on your way to realizing more, in terms of productivity.

Write A Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.