I would also appreciate it if you could leave a comment below with some original insight.
In this post, I will be explaining the concept of the Risk/Reward Ratio, also known as the RRR , and the significance of this idea when it comes to trading.
I will also be explaining how this can be applied to Bitcoin's Chart on the daily, in regards to gaps.
- To begin with, Bitcoin's chart shows a huge gap leading down to 9.6k
- Unfortunately, this gap is yet to be filled.
- Given that 99% of gaps that have been created get filled some time in the future, it's likely that this gap will fill as well
- However, solely approaching the chart from the perspective of gaps has its limitations
- For instance, the gap at 11.4k took almost a year to fill.
- As such, gaps don't provide us with a specified time frame as a reference
- Should we fill the gap right now, and bounce at gap support, that would be a 7% move downwards from the current price
- Should we see a stronger price movement that extends below the price gap, we could see a 15% move downwards based on support levels
- The gap support at 8.8k converges with the descending support on the weekly, as well as the 0.5 support (refer to our previous analysis)
- As such, it's reasonable to conclude that a price movement over 15% is less probable.
- On the bright side, it's also important to note that there are some gaps above the current price, indicating potentiality for bullishness
- There is a wide gap at 10.5k levels, and another one at 11.4k
- Given this information, we can estimate our risk/reward when entering a position at current levels
- Splitting our entries into three different levels, we can:
1. Enter at the current price of 10.2k
2. Dollar Cost Average ( DCA ) at the 0.382 support at 9.4k
3. Enter at gap support around 8.8k
- This way, we know that our risk is limited, and that the upside remains huge, due to the overall trend being .
- Based on significant levels, a trader would then calculate his stop loss target and take profit targets according to his risk appetite.
The trend is your friend. While the short term trend may appear , it could be said that the overall trend for the long term remains . As such, it would be better to look for spot/long entries near support.
Don't predict the market. Take it by levels, and play by probabilities.
- Michael Wang-