Mail Bag - DryShips Inc. (Public, NASDAQ:DRYS)

A reader submitted this trade from Friday as depicted in the chart below. He was targeting S1 on break of 2 inside bars (NR7). "I was in the money but didn't book any hoping that it would at least test S1 at 82.50. I have a hard time telling when to book profit or let it trade. Your advice is always greatly appreciated."

The chart above maps out the areas of support and resistance. There's no obvious PP that stands out, but it's important to know where S/R levels are as well as the intraday PPs because they don't always line up.

In the early going, support turned into resistance as price based below, but could not take back the upper blue line. Two inside bars (NR7) is a common setup on this blog, but it is important to distinguish 2 inside versus NRIBs. These are not narrow range bars, even the NR7 bar is not narrow, but given what has preceded, it is the narrowest of the last seven bars. NRIBs are more powerful than regular inside bars.

The last chart is a 5 minute time frame and the point I want to highlight here is the wide swings in price leading into the trade. This is not a high quality setup despite the inside bars. After breaking out, DRYS carves out three consecutive 5 min. red bars with lower shadows, the third of which is a hammer-like. The high of the hammer bar is a whole number -$84.00. After taking out $84.00 by almost 50 cents, you have to protect that whole dollar level and plan to book some profits if the hammer initiates a reversal.