Comparing Losses in Crypto with the 80/20 Principle (Pareto Principle)
The 80/20 principle, or Pareto Principle, states that 80% of results come from 20% of causes. In the cryptocurrency market, 80% of profits or success often come from 20% of correct decisions or essential knowledge. Conversely, 80% of losses can also stem from 20% of the biggest mistakes.
Why 90% of Newcomers Lose Money in the Crypto Market
1. 80% of Losses Come from 20% of Major Causes
• Lack of foundational knowledge:
New investors who do not understand blockchain technology, how the market operates, or the factors affecting cryptocurrency value. They spend 80% of their time following inaccurate advice instead of focusing on learning.
• FOMO (Fear of Missing Out):
20% of the time spent making mistakes by buying at price peaks accounts for up to 80% of their losses. For example, many people buy Bitcoin or altcoins when prices soar without proper research.
2. 20% of Successful Investors Based on 80% of Correct Decisions
• Clear planning and risk management: Successful investors often focus 80% of their time on strategic analysis and only 20% on trading actions.
• Understand the market and manage emotions: Psychology accounts for 20% of influencing factors but determines 80% of stability and long-term profits.
How to Apply the 80/20 Principle to Differentiate and Succeed
1. Focus on 20% of Core Information
Instead of spending time reading all news or chasing trends, focus on the most important factors, such as:
• Technical analysis: Learn how to read charts, identify price trends.
• Macroeconomic factors: Understand the impact of interest rates, legal regulations, and major events on the market.
• Core cryptocurrencies: Only choose coins with long-term potential (like Bitcoin, Ethereum).
2. Invest 20% of Capital to Reduce Risk
Instead of investing all your money, you should only use 20% of your assets to participate in the market. The rest should be allocated to safer assets (like gold or stocks), helping you control risks in case the cryptocurrency market becomes volatile.
3. Allocate 80% of Time to Learning, 20% of Time to Action
• 80% of the time: Learning, researching the market, taking courses, or reading reputable materials.
• 20% of the time: Execute trades, but based on analysis and a predetermined plan.
4. Focus on 20% of Decisions That Yield 80% of Profits
In an investment portfolio, only 20% of the coins or tokens may yield 80% of the profits. Focus on optimizing effective investments rather than trying to 'catch' many types of assets.
5. Reduce 80% of Mistakes from 20% of Poor Decisions
• Eliminate the FOMO mentality: Only buy when there is clear analysis, do not follow the crowd.
• Avoid excessive leverage: 20% of trades using leverage incorrectly can lead to 80% of losses.
• Do not invest in projects lacking transparency.
Conclusion: How to Differentiate?
To stand out in the crypto market, strategically apply the 80/20 principle:
• Spend 80% of the time learning, building plans, and analyzing the market.
• Only use 20% of your investment capital, focusing on the right decisions and core assets.
• Eliminate 20% of common mistakes (like FOMO and lack of planning), and you will avoid 80% of losses.