The Risk Index is a way to evaluate your potential loss should your stock decline to its estimated lowest price. A stock is considered a reasonable risk if the potential loss is no more than one third of what you stand to gain should the stock go up to its potential high. A Risk Index of 25 percent or less shows that this condition has been met. If you buy a stock at its buy price, the Risk Index won't exceed 25 percent.
Risk Index at the Current Price
When the current price is at or below the buy price, it will be framed in green. If the current price is above the buy price, however, the Risk Index may be above 25 percent and the risk too high to justify a purchase.
Occasionally you will find that the Risk Index comes up as a negative number. Obviously no transaction is without some risk and the idea of having one in which there is nothing to lose would be misleading.
As you do when the "Mood Indicator" shows that people are paying less for the stock or are selling—when the stock is "cool"—you should look at stocks whose risk appears negative to see why investors are paying less for the stock. If there's nothing fundamentally wrong, then you can go ahead; but beginners especially should be sure that they are not overlooking some problem among the quality issues.
Remember one of the important rules of investing: "If it looks too good to be true, it probably is!"
To see how these values are calculated, review the Technamental Stock Study Worksheet.