One can never be sure of the certainty of a bet’s outcome. However, one can increase the probability of winning the bet (i.e finding the trading edge) by looking at “supporting circumstances“.
Without dwelling into detailed analysis of the industry and company factors, let’s look at a possible bet – CB Industrial Product (or CBIP). This company was covered in an earlier posting. Let’s take a long position bet on CBIP.
What are the supporting circumstances?
1. Possible re-bound movement (upon nearing the support zone of the lower BB range)
2. Trailing P/E is significantly below the average historical 5Y-P/E
3. Target price by analysts is relatively higher than current price
To reiterate again and again, a bet is always a bet. There is always a winner and a sucker for a bet. No one is guaranteed a perfect 10 out of 10 winning outcomes. One should always adopt a strict risk management approach.
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