Riot Platforms Presents A High-Reward Potential Trading Opportunity On Bitcoin Surge

Riot Platforms RIOT just had a false breakout to the downside, within an overall uptrend in 2023. That creates a bullish scenario for a favorable reward-to-risk trade. RIOT is a Bitcoin mining company, with the stock correlated to the price of Bitcoin BTC/USD. Bitcoin surged strongly on June 20, breaking above a resistance area.

RIOT has been consolidating throughout May and early June following a strong run higher earlier in the year. 

Throughout May the low of the consolidation period was $10.06. The price punched below this in June but has since started to recover. Technical analysts refer to this as a false breakout; when the price tries to break out but fails to continue moving in that direction. 

The scenario sets up short-term or longer-term trading opportunities. RIOT is one of the top-performing stocks over the last three and six months. Chart from TradingView.

The RIOT Short-Term Trade

By entering near the current price of $11.25, a stop loss can be placed a couple of cents below the recent swing low at $9.42. That's $1.85 in risk per share.

After the false breakout to the downside, the price may attempt to rally back to the highs of the consolidation. The May high was $12.90 while the April high was $14.43. For a short-term trade, a target could be placed in the vicinity of those highs. A $14 target provides $2.75 of upside per share, which is greater than the risk.

Since the price target is well within typical movement and the trade is likely to last less than two weeks.

The higher reward opportunity comes from a slightly longer-term trade. 

Longer-Term Potential In RIOT

If the price of RIOT can rally through and above the recent consolidation, the next up leg of the uptrend may be underway. The last rally in March and early April, launching out of a similar consolidation, rallied 179% off the low. The rally in January ran 100% before entering a consolidation period.

Therefore, a conservative profit target based on recent movement is 75% to 85% above the recent swing low of $9.42. That puts a target at $16.50 to $17.50. The reward:risk on the trade is near 3:1 or more.

Since the stock is correlated with Bitcoin BTC/USD, Bitcoin bulls may want to hold on for even bigger gains. For those who think Bitcoin will reclaim $60,000, RIOT could be trading north of $35 if that occurs.

Bitcoin is in an overall uptrend throughout 2023. On June 20 it broke above a short-term corrective trendline indicating the current pullback may be over and the next wave of the uptrend is beginning. Whether the price follows through to the upside or not is unknown, but the reward:risk opportunity in RIOT presented by Bitcoin's movements is favorable.

Disclaimer: The author doesn't currently hold a position, but may initiate one based on what other opportunities are available. RIOT stock and Bitcoin are both very volatile and can witness substantial price moves, including to the downside. Consider this before investing.