I have written before about the amazing insights of the Pareto Principle also known as the 80-20 rule which states that 80% of results come from 20% of causes. Applying this to trading, it would imply that 80% of profits come from 20% of trades, and that 80% of losses come from 20% of trades. The remaining 20% of results would spread between the middle 60% of efforts.
Approximately 20% of your set-ups, if handled properly, could result in rich rewards. In addition about 20% of your random, impulsive, or preconceived bias trades probably produce most of your serious losses.
Sit down with a paper and pen and explore just what exactly is working for you. Look earnestly for what is not working for you. Then ask what might work.
There are really only four things we can do: We can do more of something; we can do less of something; we can start doing something; and we can stop doing something.
Successful people concentrate on what they want and how to get it. What do you want from your trading, and how can you get it? Do you want to make consistent and recurring profits? How can you do this? How else? What should you do more or less of? What should you begin doing, or stop doing?
Unsuccessful people think about what they don’t want. If you think about not wanting to lose money or not wanting to be wrong, the problem is you’ll probably end up with more of that. When losing traders get what they don’t want, the tendency is to make up excuses or look for what or whom to blame. These traders need instead to turn their attention to what they do want and how to get it.
As a trader it’s vital to look for what is important and what is merely interesting. It’s easy to get distracted by uncritical events and ideas. Ask yourself, what is the most significant aspect or development for you to pay attention to at this time? Then ask yourself what is the most valuable use of your time right now?
Another way to analyze your trading is the following:
What am I trying to do?
How am I trying to do it?
What are my assumptions?
What if they are wrong?
If wrong, how can I correct my course?
You can also clarify your trading down to the simple principle of does it work? Is it working for you right now? Are you effectively working what works? Sit down and make a written plan to get what you want. Then, start each day by focusing on the plan and refocusing as the day goes on. Determine where your vital focus needs to be, and keep returning to the important.