BUY RIOT: Almost 6:1 Reward/Risk!

18 sept 2019

Here's my idea to go long-on RIOT. This is a daily chart.

First, I always need 4 independent reasons to take a trade. They are as follows ...

1. Location
- Is the price in the correct location? In general, I price must be in the bottom of a range for a long, and at the top of a range for a short. Fib levels are good for this.
2. Market Structure
- Is there a double bottom with a breakout? I need to see a 'W' like structure in price.
3. Momentum
- Is there a divergence in MACD? This is one sign that a reversal in trend is around the corner.
4. Volume
- This is paramount. I need to see a bullish trend in volume if I am going long, and vice versa for short positions.

So, do we have our 4 reasons for RIOT?

We have ...

1. Location:
- We are slightly below a reload zone, around the 0.886 level. This is a good area for a reversal; we are near the bottom of a range
- We have a 'd' shaped Volume Profile, meaning most volume has been traded at the bottom of the range. This tells us that there is plenty of upward room for price to be discovered.
2. Market Structure: We see a double bottom with a breakout ('W') on the other side of the bearish, red trendline.
3. Momentum: We have MACD divergence.
4. Volume: Bullish; uptrend

Now, I only take trades where the minimum reward-to-risk ratio is 2:1. The 'W' gives us a nice framework for when to exit (stop loss) our trade. I am risking to the lower leg of the 'W'.
For our target profit, I just extend the R/R tool so 2:1 and see if that is a reasonable area to expect the price to go.

Is it reasonable, in this case?

Well, if we follow Gann's 50% rule, we can reasonably expect price to retrace up to 50% of its previous high.
With this, we have a R/R of 5.44. Sweet!

That's it. There are your 4 reasons to take this trade :)