Fair warning, this blog post will not apply to robot traders...

Recently I was banging my head against a wall trying to short $BFLY and a thought hit me like a ton of bricks. I asked myself the question, "is the trade that you are in currently part of the 20% of the trades you take that make up 80% of your profit?" I then paused and glanced back at the choppy action on my screen and said out loud - "No" (and yes I talk to myself - trading is a lonely game people, give me a break 🤣). 

After having this revelation, I decided that the choppy action was not worth my mental capital and exited the trade. I bring this up only to illustrate the point that anyone that has done this long enough realizes what the trade they are in "feels" like. We judge this by so many different inputs that we aren't even aware of in the moment that we would be amazed if we could ever slow that process down and actually look at the computations our brain is doing. Obviously one of the main ones is price action but it could also be something as simple as what your entry into the trade was like and how the trade is playing out according to your plan. When you are in a trade that "feels" right, we all know it. There is that "feel" word again, I am sure every systematic trader is cringing right now but all my discretionary peeps know whatsup.

I want to take a step back from this touchy feely stuff to clarify. I am not saying to not stick to your risk in a trade and let the trade play out. As long as the trade is well within your plan of attack there is nothing wrong with staying the course and I would preach that this is the way you should trade in general. However even when watching Trading Tickers 2 recently there were examples were Tim G started to exit his position before his risk was broken fully because the price action was not aligning with what he wanted to see. Tim uses large size so this does not fully make my case but it does point to the fact that when great traders enter a trade they want to see it behave in a certain way. If that does not happen then they have no problem in cutting and moving on.

I'll circle back now to the original point. I am of course referring to the Pareto Principle or 80/20 rule. This rule applies to most things in life - 80% of your gains come from 20% of your trades. 80% of your sales come from 20% of your SKUs (for any DTC/ecommerce peeps out there), 80% of your dates come from 20% of your approaches and so on and so on. The rule generally holds true and definitely holds true for trading. I challenge everyone reading this right now to do this evaluation on your own trading. Open up your trading journal that you are all diligently keeping and crunch the numbers. I think you will see that this rule roughly holds true. 20% of your trades make up 80% of your profits and for those that trade multiple setups I would hazard to guess that 20% of your trade setups make up 80% of your profits as well. If I am wrong about this, please comment and let me know. I would love to know if what I am saying still holds true for most. 

The moral of the story - I decided that the trades I took today as well as the trades that I took yesterday were not part of the 20% and once I realized that, I knew it was a waste of time to keep fighting them. Instead I opted to save my mental capital and be ready for the next trade that will potentially be part of the 20%. The most important play is the next play as they say.