How 10 Trading Days Can Make or Break Your Year
The 80/20 Rule Every Trader Should Know
Here’s an interesting statistic:
If you invested $10,000 in the S&P 500 on the 1st January 2004 and held it until 31st December 2023 you’d have $63,637.
Decent, but that’s not the interesting bit…
If you missed just the 10 best days in the S&P 500 during that time, your $10,000 would shrink to $29,154, a massive $34,383 less.
But wait…
Miss 40 of the best days, and your $10,000 drops to just $7,898, a $2,102 loss after 20 years.
Ouch.
Ok Mark, cool story, but we’re traders here. What’s your point?
TIMING
Out of 5040 trading days only a small handful contributed to the gains.
That’s the Pareto principle (80/20 rule) on steroids.
The same principle applies to trading:
- A handful of weeks will make your year.
- A small batch of trades will deliver your biggest wins.
- Most of your trading stress comes from a few key trades.
- A small number of mistakes or patterns contribute most to your losers.
You get the idea.
At first, it’s daunting…
Is the line between success and failure really that thin?
If I miss a few good trades, will it really impact my results that much?
Maybe, but we can use this to our advantage.
By understanding Pareto’s principle, you can focus your time and energy on the areas that move the needle most:
- How can I go bigger on my best trades?
- How can I recognise when a day or trade is a threat to my P&L?
- How can I save my focus and screen time for when it truly matters?
The best traders embrace Pareto’s principle.
Just like a smart investor stays fully invested through market dips, a smart trader uses the 80/20 rule to their advantage:
- Pressing hard when things are going well.
- Pumping the brakes when things aren’t.
- Identifying strengths and weaknesses, then building a methodology to suit.
Take a moment to reflect:
How does Pareto’s principle play a role in your trading?
And how can you use it to tilt the odds in your favour?