tlepoC said:
Does anyone mind going through the RDR play? I may have missed it but lots of discussion on how to identify...but what's the play after identifying the scenario?
Late response because I was traveling today. Once identified, you go long and have an easy stop. If Day 0 is the last day before the reversal and Day 1 is the day it reverses, then:
1) Go long with options near close of Day 1 when the RDR is confirming or go long shares afterhours of Day 1 or premarket of Day 2. If you don't have extended hours trading, you can go long shares or calls at the open of Day 2, but sometimes the premiums are already elevated.
2) Use the close of Day 0 as your stop.
3) Set a profit taking point at least 2X above the share price at your buy point (X being the difference between the share price at your buy and the close at Day 0). I like to find a moving average above that price as my first profit take. If you don't reasonably think you can hit 2X or more then you find another way to trade it or pass on this one.
4) Leave runners. How much you want to leave as runners might depend on how you feel about the underlying market, how much risk/reward you want to leave out there, or how closely you can watch the stock.