BLOCKDESK PRODUCTS
REWARD:RISK (R:R) CHARTS

R:R Charts:  Make Relative Value Comparisons Between Stocks

To see today's sample R:R Chart, click on the thumbnail above.

REWARD:RISK (R:R) Charts show, for up to 20 companies at a time:

• Each stock's price change potentials (both up and down)
  
  

• Changes based on the block traders' price range forecasts and the equities' current market price.
  
  

• Shown as potential percentage changes, they provide directly comparable x-y coordinates in a scatterplot.

The "go", "caution", and "stop" colors used in the single-company BTF charts follow through onto the R:R display.  Besides helping you decide between prospective investments, this style of chart can help you maintain and upgrade the prospects for stocks in an established portfolio.

The Reward:Risk Tradeoff Chart plots the block traders' estimates of likely upside percent price moves on one axis of a scatterplot, and their forecasts of possible downside price drops on the other axis. The data source is the same as for the Block Trader Forecast (BTF) Charts. The Reward:Risk chart maps directly from the most recent data in the one-company-over-time charts.

This means that:

• Attractive buy candidates with large upsides and small downsides will be towards the lower right in the R:R chart.
  
  

• Dangerous-to-buy, or sell candidates with high risk and low reward potential will be in the upper left quadrant.
  

Think of the chart as a baseball diamond.  Home plate is at the 0%-up and 0%-down end of the black square, in the lower left corner. If you want to score, you have to get on first base. But in this game, you score when you get to third, not home. It's the stocks that get out in left field that you want to watch out for, and the foul balls outside of the 3rd base line. Stocks right of the first base line are usually attractive, but an extreme foul ball over there should be played with caution. Colliding with the stands could end your career.

Now consider the sample R:R Chart of the Dow Jones Industrials Average (click on the thumbnail above).  The numbers in the playing field are the stocks in the DJIA, with their ticker symbols indicated in the blue field to the right.  More than one company may be at any point, so symbols without numbers share the last number above them.

We have color coordinated the playing field to compare with the colors on the Block Trader Forecast charts. When stocks are low in their range (green), they have much more upside than downside. Stocks at the top of their ranges (or beyond) are in red. As a stock approaches that danger area it is shown in yellow.

The Reward:Risk chart helps discriminate between stocks with differing degrees of uncertainty.  A subtlety of the chart deals with stock volatility. Calm stocks (oils, utilities) typically populate the infield, with co-ordinates in the 5% to 15% up and down area. Hyper stocks (Software, Semiconductor) are usually in the 15%-25% outfield, and have much further to travel between the right field and left field foul lines.  Again using the baseball diamond analogy, a stock with 20% upside and 20% downside will be out in center field. One with 10% each way will be on second base.

The second-base stock travels a shorter path as it goes from first to third, producing less return, but sometimes a safer one. The centerfield stock may look really great at the right-field foul line, but needs to be handled carefully when it starts getting in deep left field, as it usually does. A good portfolio often has a balance of stocks across the array of uncertainty.

The following features are an aid in looking for new stocks to buy. After logging in:

• Below the R:R chart of DJIA, select any of 50 different groups of related stocks using the drop down menu
  
  
  
• Note also the button:
  
  This combo box allows you to select any of the stocks in the above R:R chart, and look at their BTF Chart histories.  Simply clicking on the button without specifying any one stock pulls up each of the stocks in alphabetic order.
  

For more on R:R Charts and instructions on how to access this product, take the Blockdesk 101 guided tour.