I've beaten the game a few times and have a tips for level 3.
1. If the kraken is no where near you and you can outrun it, don't shoot it. It will keep on following you, so you know where it is. If you do outrun it, it'll just disappear.
2. Do not keep on going on the same heading, change up your direction a little, but still heading towards your objective. He has a habit of popping up right in front of your ship if you keep to the same heading.
And most importantly,
3. Before making your trench run to bump the island, let the kraken surface and shoot him. It will buy you some time since it takes awhile for him to resurface. If you haven't seen him for a little, do not run into the island. He will be sure to surface right when you can't move or steer.