Laws Of The Vital Few by Dirk Vandycke
Last month in part 1, you saw that gravity and emotional
capacity are two of the markets’ strong underlying forces.
Here in this second part, we’ll explore how some hidden power
laws can affect the individual trader’s profits and thus why
you should be aware of them.
The 80–20 rule, also known as the Pareto principle or
Juran’s principle, named after Vilfredo Pareto and
Joseph M. Juran, is commonly heard of in different
walks of life. It is also known as the law of the vital few and
trivial many. This law states that a large part of the input (the
trivial many) only accounts for a small part (the vital few) of
the system’s effects (Figure 1). It is common to hear the Pareto
principle pop up in fields such as manufacturing, management,
and human resources, but I’ll focus on its relevance to
the financial markets...