How to use Technical Analysis (TA) with Research reports to manage risk

TA is a useful tool for timing your investments and managing risk. However, it was never meant to be a precise technique to ‘’predict’’ price movements.

Here is one simple way of combining TA together with analyst reports.

Step 1: Idea Generation

Read DBS strategy report (posted on this blog). One may have spotted Comfort Delgro as a value-unlocking play with a 12-month target price of $1.95.

Step 2: Look at price chart to determine entry/exit plan

Pull out Price Chart of ComfortDelgro from POEMS

Comfort Delgro Weekly Chart Analysis

- eg. Current price is $1.46

- find the low price point (during the Covid crash in 2020 was $1.32 (est. 9.6% downside)

- Target Price of research report is $1.95 (approx. 33.6% upside)

Having known the cut loss price (low point) and profit taking level (research price target), you have the risk management in place.

“I know where I’m getting out before I get in.” – Bruce Kovner (hedge fund manager)

Based on the simple analysis above, the risk/reward seems favorable for an entry into Comfort Delgro currently. Downside cut loss 9.6% versus gain 33.6% (3.5 risk/reward ratio).

You have derived a stop loss level (eg cut loss if price goes below $1.32) and a profit take level (eg take profit if price reaches $1.95), to ensure that you exit your investment based on a proper plan (instead of exiting based on emotions or at random).

Do note that one may run into situation of unable to cut loss. For example, a stock was being suspended before one could sell. And hence having a diversified portfolio of stocks is very important for risk management.

Do note that the above sharing is just one of many methods that you can use to aid your investment decision. More importantly, you need to know your own investment horizon and be honest with yourself on your risk appetite before settling on a method that works for you.

Posted by Jeremy Tan (Ellain's Team)