An Analysis of the 80/20 rule in the Forex Market

There are always rules that can be followed in the forex market, the 80/20 rule is one of which. So, today I will share with you about what the 80/20 rule is, and how it’s performing in the forex market.

What is the 80/20 rule?

Also known as the Pareto Principal, the 80/20 rule refers to the strange social phenomenon discovered by Italian economist Pareto in the late 19th and early 20th centuries. He believes that in any group, the most important part always accounts for only a small part, about 20%, and the remaining 80%, although a majority, are less important. This also explains the name of this rule. The most famous example of its application is that 20% of the population holds 80% of the wealth, whereas the rest 80% shares the 20% left.

In forex market, the 80/20 rule can be seen as the specific appearance of the market, or those seemingly impossible phenomena that actually have an influence.

1. Focusing only on the short swing is a no-no for forex investment. 80% of investors in the forex market only think about how to make money, and only 20% of investors consider the contingency strategy when losing money. But the result is that the 20% of investors are those who can make a long-term profit, while 80% of investors often lose money.

2. The proper allocation of time is crucial. Advanced investors spend 80% of the time studying, researching, accumulating experience and analyzing trends, and use only 20% of the time to actually operate. Other investors use 80% of the time to operate without rational thinking, and the result is they spend the remaining 20% time to regret.

3. The profit and loss of forex transactions are largely interlinked with the information held by investors. In the forex market, 20% of profitable investors have grasped 80% of the market's correct and valuable information, while 80% of those who lose money have only rashly mastered 20% of the information that are always not so accurate through a small amount of media for various reasons.

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4. Familiarity with forex volatility trends. 80% of the time, the forex market is oscillating, that is, it fluctuates within a small range. The original upward or downward trend has slowed down significantly, and the market gradually enters a stable stage with minor changes which often continue for a period of time. Only in 20% of the time, it is in a unilateral market, that is, the trend goes towards one direction of rising or falling, and there will be no large fluctuations in the market. Successful investors spend 20% of their time participating in unilateral quotes and rest for the other 80% of the time, whereas losing investors spend 80% of their time participating in fluctuations and rest 20% of the time.

Through the above analysis, we hope to help investors better understand the 80/20 rule in forex market.