Diversification is an investment stategy that seeks to minimize risk by spreading you portfolio among many types of investments. This can include buying a combination of international mutual funds, growth stocks, value stocks, gold, and bonds. When swing trading, diversification can take on a completely different meaning. Higher risk and reward is associated with the stock picks that have a greater chance of making large moves in either direction. The chance of success is generally lower but the payoff can be worth the risk of taking several smaller loses. A profitable portfolio is often the result of a small percentage of big winners rather than a high win/loss ratio comprised of several small gains. Magnitude trumps frequency more often than not. Keep in mind that some of the greatest hitters in baseball are high on the strikeout list.
Market cycles require variation in strategy. Regarding magnitude and frequency seperately offers more profitable results due to the need for flexibility during these changing market conditions.
Quazimoto’s pick of PRCC was the definition of magnitude for a penny stock trading in a range. The range between 10 and 20 cents completed yet another cycle. The shrewed trader that trusted Quazi’s pick would have been rewarded with an 81% gain in less than four days.