Case Study: Trading Cardica (CRDC) For a 45% Profit

Posted By Tate Dwinnell |  Subscribe in a reader | Comment 1

Extraordinary profits can be had in low priced momentum stocks and they aren’t too much riskier than any other stock if you’re sure to keep your losses small by dumping the position on any sign of weakness. Any increase in risk is certainly more than made up by the increase in profit potential.

I call these kinds of trades Quick Strike Profit (QSP) plays here at SelfInvestors.com but in general they are shorter term swing trades in high momentum, lower priced stocks. I use them when the time is right (in a strong market) to accelerate the returns of my portfolio. Gold and Platinum members are alerted to several of these every month when I initiate a trade in the Model Portfolio. One such trade in Cardica (CRDC), yielded a quick 45% profit in just a few hours of trading.

Before I go into the details of how I traded CRDC, I wanted to illustrate an example of how I minimize my losses in these kinds of trades by dumping the position quickly at the first sign of weakness. This was illustrated perfectly today in a QSP trade in Silverstar Holdings (SSTR), which I closed for a small loss.  This morning I issued the following alert on SSTR:

I’m initiating another QSP trade this morning, this time in SSTR.  The stock gapped up to a record high with record volume on Sept. 28th after posting an outstanding earnings report.  The stock has been digesting that gain and now looks poised to begin running again.  I’m in here with a very small $7500 position at 4.07. and am just looking for a quick 20 – 30% over the next several days.

Here’s a look at the chart which shows that the stock surged out of a bullish triangle formation with decent volume.  However, the stock kept pushing lower throughout the day and the selling picked up by the end of the day, sending the stock below $4/share.  When a stock closes in the lower half of the intraday range with above average volume, that is an indication of weakness.  This kind of action almost always results in me closing a QSP trade because it often results in further deterioration.  As I’ve said, I cut my losses quickly in these trades at the first sign of weakness.  When in doubt, get out.  I issued the following sell alert to members before the close today:

SSTR flashed all the signals of another run, but it’s proving to be a false alarm at least at this point. The stock is staging a significant reversal today indicating the stock isn’t quite yet ready to resume the run.  I’m going to go ahead and take the small loss and will look to try again if it flashes a buy signal in the coming days.  The key in playing these is to keep your losses very small and close the trade at the first sign of weakness to avoid large losses.  I’m out at 3.94.

The SSTR trade today shows that sometimes the trade doesn’t work out as you expect.  Take the small loss and move on knowing that another trade will prove to be highly profitable just as CRDC was (which I highlight below).

I began featuring CRDC in my #1 Longs List (a new feature of the Gold and Premium membership package) on September 14th as it began to carve out a picture perfect bullish triangle.  CRDC would appear on my #1 Longs List for the next couple weeks when it finally began to move on September 26th.  I issued the following alert:

I’m going to go ahead and play my hand in CRDC, a highly speculative company with a very bullish looking stock chart.  The stock has carved out a picture perfect bullish triangle formation and looks poised for a big move out of this pattern.  The stock has just begun moving with some good volume.  I’m in at 9.34 with a very small position of $7500.  The only reservations I have about this pattern is that it’s too perfect so may be watched by too many making it more prone to failure.  I definitely feel it’s worth the gamble and will have a tight stop in place.

Here’s the chart below.  Looking back on the trade I honestly don’t remember why I initiated the trade for the first time on the 26th because it hadn’t yet cleared the triangle formation yet 🙁 .  Call it over eager, call it lack of sleep but it was too soon to initiate.  As it turned out, I got in at a better price, but you really should wait for a breakout of the pattern.  Two days later, it did just that and looked as if it was ready for the big run, but on Oct 1st stalled out and closed at the low of the day.  Remember that I closed the SSTR trade following a high volume reversal.  CRDC reversed on Oct 1 and closed in the lower half of its intraday range, but it didn’t do so with big volume so I held on for a couple more days.  On Oct 3rd I decided to go ahead and dump the stock for a 1% loss.  I have seen too many trades like this stall out and just drift lower and lower with no real conviction.  I could always get back in if CRDC began to show some life again, so I dumped it and issued the following sell alert to members:

I’m closing my last QSP trade in the portfolio.. in CRDC.  It looked like a couple days ago it was going to bust out for good from its  very bullish looking triangle formation as the stock gapped up in the morning.  It proved to be a false alarm at least for now.  Since then, the stock has stalled and continues to meander lower.  As with all QSP trades, I’m quick to pull the sell trigger if the stock shows any kind of weakness.  No exception here.  I may get in again down the road, but for now it’s best for me to exit with a very small loss and look for stronger positions.  I’m out at 9.27

… and show some life it did!  At the end of the day the very next day, CRDC got a surge of buying and I issued another alert to members:

Cardica (CRDC), a QSP trade I exited just yesterday is finding some life here, so I’m going to try again and see if it can break out for good this time.. It looks good and is getting a ton of buying here at the end of the day and is on the verge of breaking big.  I’m in at 10.17 with a small $7500 position.

The chart below shows my entry and exit on the intraday chart.  Notice the big surge in buying at the end of the day on Oct 4th where I re-initiated the position.  Once the stock cleared resistance at 12 the following day, there was no overhead resistance in its path but I thought that a new source of resistance could be at the psychological level around 15 so I was looking to take profits up there.  I wasn’t about to get greedy.. a 45% profit in literally just a few hours of trading is an exceptional move that doesn’t come around everyday.  I issued the following sell alert to members:

It’s time to take the profit in CRDC.. what a 2 day run!  Up 45%.  These kinds of home runs don’t happen very often but the reason I play the QSP trades is because just one of these can really accelerate your returns.  By keeping losses small in these and hitting a home run every now and then you will do extremely well.  I’m out of CRDC at 14.77 and looking for another QSP trade

As the trades in SSTR and CRDC illustrate, trading isn’t always textbook, certainly isn’t always pretty and mistakes do occur.  Hopefully you’ve learned a bit from this case study just as I have.  It’s always a good idea to review all your trades (even your winners) to discover ways you can continue to improve.  Just remember, you can enjoy big gains in the market year after year if you exercise discipline and keep those losses small.

Also keep in mind that the run in CRDC could certainly continue up from there.  Look for some kind of bullish basing action (perhaps a flat base or another triangle formation) and a breakout from that base as an opportunity for another trade.

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Comments on Case Study: Trading Cardica (CRDC) For a 45% Profit »

[…] Last year I traded CRDC for a quick 45% profit and I believe it may be offering such an opportunity here again as it attempts a breakout from a bullish triangle formation.  This is a highly volatile, speculative swing trade so play accordingly and please do your own research. […]

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