Everyone should have a trading edge when trading in the stock market, and I want to share with you the process you need to go through to get this trading edge…
I’m going to use the Pareto principle (or 80-20 rule) as an example to fine tune the outline I want to get across. This principle states that 80% of your results come from 20% of your effort.
This principle can be applied to many areas of life. If you’re looking at a large corporation, for example, 20% of that company’s lead employees with drive 80% of the company’s work.
Same goes for drawing a portrait of a face – 80% of the resulting portrait will come from only 20% of the sketch (you can see the face through the outline alone). There will be a lot of additional work: shading, coloring, etc., but the general layout is evident after the sketch.
If you know and understand this concept, you will also understand the process behind finding your trading edge.
Let’s start with a box. This box represents 100% of what you’re currently studying…
The beginning box is 100% of your effort – you may focus on stocks, bonds, futures, etc. As you fine tune this box, you may begin to specialize in a certain category (the 20%).
You now make that 20% bigger; it is your new 100%. In this new box, let’s say you choose stocks. You can be a day-trader, a swing-trader, a long-term investor, etc. If you choose swing-trading, you take 20% of that and make it bigger – your new 100%.
As you focus on swing-trading, you may then zero in on the leaders of these kinds of stocks. The process continues on like this…
The process creates constant fine tuning which leads to finding your trading edge.
What Box Are You In?
Are you in the initial box? Are you doing options, stocks, etc.?
If you’re unsure, you are still in the initial box. If you dig deeper into your 20%, you will continue fine tuning and find your trading edge. Using Pareto’s principle, you can become a professional and/or successful in certain areas!