Trade Recap: Profiting from Predictable Patterns

So today, $DRL-Doral Financial had another insane move closing near 25% above Friday's close. It traded nearly 11 million shares today and has now almost doubled since Thursday. I traded $DRL intraday a few times today and came out with a pretty decent profit. Today, I'm going to emphasize why its' important to understand how a specific stock acts. I will show you the intra-day chart for $DRL from Friday first.

So the image on the left shows $DRL intra-day chart from Friday. The blue resistance line is the $3.00 mark. As you can see, the stock shot straight the day until about late afternoon when it hit the $3.00 mark and pulled back. This is a very significant point in the chart. Because not only is it a resistance point, it is also at a whole number  - $3.00. Whole numbers are very important "psychological" points in technical analysis. This is partly due to the fact that a lot of people put their stop losses at whole number points. As you can see on the chart, $DRL had a slow "grind" upwards for the next two hours. As soon as it broke through the $3.00 mark, it ripped upwards and had a high of about $4.00. Unfortunately, I was away from my trading desk when the break-out occurred so I did take advantage of it. You can see what happens after $DRL acted it went "parabolic". "Parabolic" simply means a stock has gone straight up very quickly without a pull back or consolidation. Usually when a stock moves up this quickly, the eventual drop is very sudden. So as it usually occurs in parabolic stock moves, $DRL eventually pulled back down and closed around $3.00. I took a small short position during Friday's late afternoon fade, but I did not hold for very long though because I was worrisome that $DRL's low float (Just 6 million shares) could lead to a short squeeze. I did however add it to my watchlist going into this week.
Monday Intra-day:
Now I'm gonna show you today's (Monday) intra-day chart for $DRL

Now the image on the right was the chart for today (Monday). As you can see, it is very similar to Friday's intra-day chart. As soon as I saw the stock price break above $3.48, I knew it had a good chance of squeezing to above the $4.00 range. This is why it is important to understand what stock you're trading and how it moves. Its also very important not to try to "guess" when the pull-back would happen. As you can see, at $4.00 the chart was pretty over-extended already. But if you went ahead and shorted at $4, you would have been been down 10% as the squeeze continued. This kind of move is very common with low float stocks so it is important to be patient with short positions. I had three good shorts on $DRL. 1st short was at $4.09 then covered at $3.97. Second short was $3.96 the covered at $3.84. Third short was at $4.19 (on the bounce) and covered at $4.02 into the wash-out. Three small scalps but profits and consistency add up. So quick recap on what we learned today:

1. Study the stocks you have on your watch-list for predictable moves
2. Exercise patience when starting a short position on a "parabolic" move, trying to "guess" the top can be very risky.
3. Always take your profits when you have them, you can never go broke by taking profits.

Hope this helps you on you trading journey. Good luck seeking alpha

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