A mistake that I may get nice redemption for

Yesterday when I posted my month in review, I didn't think I would be making any trades today, so I figured I was done for the month.

However, I had VCSY on my radar as a potential G-Pattern setup. VCSY went vertical a few days ago, looking awfully like a pump and dump. In fact, it was very much looking like the start of a Supernova pattern that Timmay likes to short. However, it's managed to hold most of its gains, and has been consolidating.

The G-Pattern is a pattern recognized by a trader nicknamed EliteG, who has posted over on Cameron Fous's board. This pattern is used to recognize those explosive penny stocks that increase by ridiculous amounts (double, triple, or quadruple in price). The G Pattern starts with a strong volume and price move (the G1 stage). This is followed by a low volume pullback that doesn't pierce the low of the G1 stage (the G2 stage). The G2 stage must last at least 2 days. This is critical, and is what differentiates it from a pump & dump or supernova pattern. A supernova involves high volume panic selling rather than a low volume pullback.

The G3 stage is the breakout stage, where there is another upward movement in price and a return of volume. To fulfill the pattern, the price must break the highest open or close of the G1 stage.

As you can see from the chart, VCSY fills that pattern perfectly. You had the big 3-day price and volume surge. This was followed by a 2-day pullback in price, and volume was only a fraction of the initial surge. This indicates that there wasn't any significant panic selling, and the stock was consolidating right around 6 cents.

Today, there was a return in volume, and price started to move up again. On top of that, you've got the white candle piercing the upper bollinger band with an RSI2 of more than 90, which is the sign of a strong stock.




Seeing this developing today, I knew I wanted to enter. I couldn't pass up the chance at such a perfect chart pattern. It was just a matter of finding the right entry point. Technically, the best entry point on this G pattern would've been on the 6 cent break. There was a nice volume surge right around 6 cents, and I thought about entering. However, I noticed on the 1-hour chart over the past few days (always good to look at multiple time frames) that there was significant resistance at 6.4 - 6.5 cent range. Since you can enter the G pattern at any time on breakout day, I decided to wait to see if that resistance would break.

The stock surged from 6.2 cents to 6.5 cents, and was there for a few minutes. Then, it hit 6.55 cents. I jumped in for 80,000 shares....a very large percentage of my capital because this chart pattern was just tooooo perfect.

However, the price didn't hold there very long, and quickly started coming back down. Since I was risking a large loss as this was a small penny stock, I had to get out quickly. I quickly used Thinkorswim to close my position. It automatically put in a 6 cent limit. I should've changed this limit to the bid price which was 6.3 cents. However, I didn't, and part of my order ended up getting filled at 6 cents and the other half at 6.3 cents. My average fill was 6.1 cents, which cost me $150 more in a loss. I ended up with a $450 loss after commissions. Ouch! So much for being over the $6000 mark on my account!

The fact is that I chased the stock a bit. Not because I didn't wait for the breakout, but, by looking at the chart, there was a pretty sharp spike from 6.2 cents to 6.55 cents, meaning that there was a good chance of a retracement. I should've waited for it to settle down a bit to see if it would hold above 6.5 cents.

LESSON LEARNED: Don't be too quick to jump in a breakout like this. Let it settle down to see if it holds.

LESSON LEARNED: With small pennies, put your limit at the bid price, not the even cent, to ensure you get a better fill price.

I continued to watch the stock. It's too bad I didn't have the balls to hold through that dip, because the stock price started coming back up. Again, it was sitting at 6.5 cents, this time consolidating nicely there. Finally, it hit 6.6 cents. I waited again to make sure it wasn't a fake breakout. I then put in an order for 70,000 shares at a 7 cent limit.

Working....working....working....working.....

Minutes passed, and the stock price climbed to 6.9 cents. My order still wasn't filled! Not even a partial fill! I got scared of chasing the stock, so I canceled my order. I kept entering my order and canceling it as I would put in the order but not get a fill after a few minutes. Thinkorswim called me to make sure there wasn't something sketchy going on.

I saw the price stabilizing around 6.9 and 6.95 cents, with a tight bid/ask spread in the last hour of trading, so I finally committed and jumped in for 70,000 shares. I got my fill at 6.95 cents. This time I was determined not to get shaken out. The price did dip to 6.7 cents briefly but quickly returned to 6.9 cents. The stock closed strong, right at 7 cents.

It's too bad I got shook out, because I'd be up $300 right now rather than down over $400. Hell, if I entered on the 6 cent break like the G-Pattern tells you to, then I'd be up over $600.

However, there is a really good chance I may get redemption on this play (just like I did with UVSE where I first lost on it then won big). First, it's a perfect G Pattern setup. These patterns often run 100% beyond the breakout point...just look at all of Elite-G's examples here.

But, there's more to this play than just the chart pattern. VCSY filed a lawsuit against Microsoft for patent infringement back in 2007. This case was settled out of court recently (which explains the big recent surge), and the judge signed off on it today. What we don't know are the details of the settlement. If the details of this settlement are reasonably positive at all, it could cause this stock to surge in price like nobody's business. The question is what the details were, and when they'll be released.

People on IHUB are comparing this to PTSC. Back in 2006, PTSC won a patent infringement in court and its stock price went from pennies to well over a dollar.



Of course, this is a settlement, not a court case that was won. Again, we don't know the details, and we don't know when those details will be released. Today's volume and price action indicates that the details may be positive (as news is sometimes reflected in the share price before it even comes out). Or, it could just be people "buying the rumor".

There's even more promising things about this stock. The fact I struggled to get my order filled is a good sign, meaning people are holding onto their shares of this thing and not selling. Also, message board hype on Yahoo and the Raging Bull is picking up on this one. IHUB is slower but there's talk there as well.

Like UVSE, this is one of those plays where all the variables are in line...chart, explosive penny stock, hype, and rumors. This may be a big home run play for me. We shall see.

GUTTER ACCOUNT STATS:
Yesterday: $6098.42
Today: $5629.16

Today's loss: $-469.26 or -7.7%

Since I assumed that I wouldn't be trading today, I will count yesterday as the last day of the month and today as my first trade of August (because I don't want to run all those stats again!). So this trade will show up in my August stats when I do my August review.

Positions being held overnight: VCSY