The 80/20 Trade: Pounce Like a Cat
Patience can be rewarding
by Bob Stokes
Updated: February 02, 2017
Copy the tiger when stalking and capturing a "pounce-ready" trade.
Tigers know that the prey they covet is elusive: They show great patience and care when stalking the target.
I came across this description of the tiger's technique:
When hunting, this cat may take twenty minutes to creep over ground which would be covered in under one minute at a normal walk ... the tiger will sometimes pause ... move closer and so lessen that critical attack distance before finally raising its body and charging.
They wait until a victim comes close and spring up. This ambush method of hunting uses less energy and has a greater chance of success.
You must ambush high confidence trades. Long-time professional trader and teacher Dick Diamond says patience is vital before the ambush.
I talked to Mr. Diamond about his famous 80/20 trade, which he means literally -- he says it has at least an 80% chance of success. It's the only trade setup Mr. Diamond will take.
Q: Could you tell me about the 80/20 trade?
Diamond: The 80/20 trade is based on indicators that create a specific trading setup. A trader must act on this setup immediately. You must wait, and then pounce like a cat when the opportunity presents itself. Then you set stops. In shorter time frames, like trading from a five-minute chart, the 80/20 setup may come along a few times a day. If you're trading a longer time frame, like off of a 120-minute or 240-minute chart, the 80/20 will come along less frequently, but when it does, the opportunity will be bigger. The 80/20 trade can be especially rewarding for position traders. Sometimes the indicators reveal what I call 90/10 or even 95/5 trades.
Q: What emotional factors do students need to work on the most?
Diamond: Traders must be calm and confident. You can't be a nervous Nellie and succeed at trading. Calmness comes from learning the proper trading techniques.
Q: What's different about trading today vs. when you started out in the 1960s?
Diamond: When I started trading, execution took up to five minutes -- now it takes less than a second. Time is money, so computers provide a great advantage to today's trader compared to pre-computer days. At the same time, while computers allow the trader to see multiple indicators on the screen, one must avoid indicator overload. One must learn to narrow down the number of indicators.
Read Diamond's full interview and see an example of his 80/20 trade setup in a new free resource, "Lessons from 48-Year Trading Legend, Dick Diamond." You'll also get a 10-minute video in which he shares 6 of his key trading principles and 4 pitfalls every trader should avoid.
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