This one is a bit risky, but can be very rewarding if you get it right.
Basically this trade is set up because we were looking for a nice early entry, here is why we took the trade:
This company came out with a strong profit report today and immediately price moved higher, but when the price reached the higher prices, there was a series of crossings that took place, which signals selling. as you can see, there was an increase in volume today on higher prices and the stock closed a long way from the high of the day. Now there is a saying in the market that goes "buy the rumour and sell the fact" which is evident here, notice the few days leading up to today the price moved higher, that would be because institutions have studied the companys performance and would have known that they were about to report a strong result, so they buy it at a cheaper price, then push it up before the announcement is made because they know there will be a lot of buyers around to sell to and take profits. So thats just a little bit of psychology you learn about the stock market in time. As for the technical analysis side of the trade, today's candle is called a "spinning top" which indicates indecision, we also have higher volume on higher prices, and we have the stock closing well below the high of the day. We short sold the stock @ $3.49 right after we noticed the large parcels of shares being crossed on the market.
Now because this was a very early entry, and the main reason we took the trade was based mainly on the fact that the crossings "could" have been selling, we could also be wrong, so we will have a tight stop loss of a few cents above todays high. Our target will be $3.20, 8.3% (41.5% Inc Leverage) which we expect to achieve within a week if we have got it right :o)
DISCLAIMER: These are my thoughts only and NOT advice as I am NOT a licensed advisor.
Please consult your stock broker for advice.
Update March 7th: This trade came off beautifully, Target was hit today and even though we could have got even more, we stuck to our target because we were happy with that objective. If you change your targets and get greedy it can turn around and bite you. We were given very sound advice that went something like this "you set your targets when you enter the trade because you are looking at it realistically without emotion, when the price gets close to your target the emotion of greed comes into play, NEVER let greed into your trading plan, greed is a killer"
So in summary, we ended up with a profit of 8.9% (45% leveraged) not bad for a week long trade :o)