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Technical Analysis Plain and Simple: Charting the Markets in Your Language, Third Edition by Michael N. Kahn - CMT

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19. Risk Versus Reward—Is This Stock Really Worth It?

Chapter 18, “Just What Makes a Stock (Bond, Commodity) Look Good?,” examined what makes a stock a good candidate to buy. This chapter looks more closely at what makes for a good trade. It is a subtle difference. This is where the monetary potential of a stock is assessed, rather than just its paper prospects.

Think about the difference between doing cosmetic dental work on a child and on an adult. The child’s teeth will eventually fall out as the adult teeth grow in. Unless there is a significant health benefit to be gained, the dental “transaction” will not be worth the costs and possible discomfort. The same is true for a stock. Unless transactions costs and the risk for a loss ...

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