Trembling Hand
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No what?
Using the Pareto principle in trading
- Thread starter It's Snake Pliskin
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No what?
tech/a
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Alright girls, T/H back down, it is obvious on the forum you have been riding Tech/A since he started posting again, not sure why, Tech/A is an experienced trader, and has a lot to offer. T/H you are an experienced trader, and your posts are en-lighting on dodging the bs, and giving real gems ... but there appears to be an unknown vendetta here, which most don't want to know about ... Tech/A is a real trader ... give him the courtesy of some space.
Trembling Hand
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Sure, last words.
Using the Pareto principle in trading = let ya winners run.
got it.
Using the Pareto principle in trading = let ya winners run.
got it.
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I started this thread to get some discussion on the P Principle and its application. I believed it wasn't an applicable device (for lack of better words) and more the result of focusing on the better trades that come about. A principle for talking about results perhaps.
TH seems to have summed it up well.
skc
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I guess letting your profit run is in a sense applying the principle. Although it is a chicken and egg issue to me... i.e. Did you let profit run and so the results become 80/20, or did the 80/20 principle led you to let profit run?
I am a big fan of the Pareto principle - it is so useful in business planning, cost reduction etc. So it can be applied to the business aspect of trading to some extent. For example, a trader runs several strategies, each requiring roughly equal effort, but her returns are heavily skewed towards 1 or 2 strategies. Then the obvious answer is to concentrate only on those most profitable ones and forget about the less profitable ones.
The other one relates to trading costs. No point phoning around trying to get cheaper internet connection, when a phone call to your broker to get commission down a couple of notches will have a much larger effect...
tech/a
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With regard to T/H.
I enjoy his postings and his standing on subjects.
Without both I wouldnt be here!
I enjoy his postings and his standing on subjects.
Without both I wouldnt be here!
tech/a
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Easy to dismiss in a cursory manner if thats what you wish to do or believe.
I personally think there is more to it.
Firstly its about observing and admitting that 80% (or a larger amount) of profit comes from a small % of trades.
If you dont at least recognise this in your trading your either trading a consistent low R high win rate method or you are actually cutting your winners short particularly if your struggling with profitability.
I even noticed on T/H's scatter chart he offered up some time ago that on that on his chart the above held true.
Its about always finding ways of improving your R/R so that your top 20% have the greatest impact on the bottom line.
Placing yourself CONSCIOUSLY in these positions give you more of an opportunity of being involved in a life changing trade---it only takes 1
A constant work in progress.
Its more than letting your winners run its setting yourself with a trading method which increases your opportunity of high R.
Lots of T/H's scatter charts here and discussion on the top small% higher winners and their effect on a trading method.
https://www.aussiestockforums.com/forums/showthread.php?t=12683&page=5
Trembling Hand
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Yes Tech I have acknowledged that the top 20% are the cream that makes the big diff. What you haven't acknowledged is that the bottom 80% of profits which is actually 80% of your effort pays your bills to keep the business going. You cannot survive without them.
I've done this game long enough to know what it actually takes to survive and prosper. And in my opinion far too many spend all their time chasing the prosper bit without taking care of the survive bit. I guess its a different perspective. I want to go to work and give myself the best chance at surviving and making money today, tomorrow and every day onwards, irrespective of what the market is offering.
I don't want to waste today chasing 20Rs, I want to work on being profitable on the 80% of the time that only 2Rs are on the table. Ironically the 10-20Rs will then be plentiful because I've profited when there was only 2Rs to get me through.
Thats why I scalp. Yet I will quickly bring out the trailing stop if warranted.
If one was to go back through the history of their trades and were to compare the 20% (giving 80% of profits) vs. the 80% (giving 20% of profits); ie set up, factors that came into making the trade etc.
And found that a particular aspect (condition or whatever) that was relevant & applicable to the 20% (earning 80% of profits), but not in the 80% (earning 20%).
Would you re-examine your trading methods?
And found that a particular aspect (condition or whatever) that was relevant & applicable to the 20% (earning 80% of profits), but not in the 80% (earning 20%).
Would you re-examine your trading methods?
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That's a good point which leads to my points of view.
Opportunity cost is an issue which no-one seems to have touched on. "Does one stop trading until specific conditions are met that lead to black swan events?" Why not take the opposite approach and be risk savvy and prepared for the b-swannies?
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I feel the principle is easier to apply to fields that are more concrete than the markets. TA spoke about contracts over a certain limit. That makes sense. How can you do that in the markets without the same 100% stipulated guarantee?
For the markets it seems to be a way of analysing past results. I am happy to be corrected wrong.
Wysiwyg
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What this question says is you don't trade until before the black swan event. If you were short only then that would be a good strategy but aren't we discussing long too?
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Yes, black swan events are impacts of the highly improbable. That is long too.
Wysiwyg
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Ok I have deciphered. You either short the improbable black swan event or go long after the black swan event. That is a great strategy.
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I would have thought being long or short during the event, not after it. That would require an entry prior to it.
Wysiwyg
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Yes, good idea.
If one was to go back through the history of their trades and were to compare the 20% (giving 80% of profits) vs. the 80% (giving 20% of profits); ie set up, factors that came into making the trade etc. And found that a particular aspect (condition or whatever) that was relevant & applicable to the 20% (earning 80% of profits)
any idea what that particular aspect/condition might be?
any idea what that particular aspect/condition might be?
For whom?
You would need to go over your own trading methods & results, analyse & see what you find.
In my case, adding a very simple 'filter' has improved my Win Loss ratio and decreased my ave loss % a bit.
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