Time Diversification Minimizes Market Risk


One of the questions I have often been asked is, “Should I invest every stock in my watchlist now?” , “Should I trade every single opportunities (ideas) today?”. The answer is always a resounding no.

Here’s why.

First of all, buying every stock would likely take financial resources greater than most individuals posses. Secondly, buying all your picks today, for instance, will increase your odds of becoming what we refer to as “a victim of the times.” What this means is that individuals who deplete all their capital on one day’s picks become totally dependent on how that one specific day performs. What if an unbelievably dynamic opportunity presents itself 1 or 2 days later? Where would the money come from, which is now all tied up in say, last week? Even worse, what if our picks “stink up the joint” on the very day you decide to buy everything?

We encourage investors and traders to spread their picks over a period, (eg. 1 or 2 weeks period). For example, a $20,000 account owned by a swing trader might be put to work by investing a quarter, or $7,500, twice a week. At the end of a 2-week period, the entire $20,000 will have been put to work.

Now here’s the beauty of a plan such as this.

By the time the trader is positioning the final lot of $7,500, he or she will more than likely be selling out of the first lot, and maybe even the second, if swing trading. This methodology guarantees that you will always have funds available for those occasional “major” opportunities. And do not think that two plays a week are not enough action during your development phrase.  It should be remembered that every play is comprised of two major actions – Entry and the Exit – not to mention the other items involving the management of the trade. In reality, the person who plays four times a week has to make a total of eight decisions!


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