5 Pillars of Successful VWAP Day Trading
Hello, loyal VWAP legion!
For anyone new to my trading methodology, I’m a DAY TRADER who places both bullish (long) and bearish (short) bets based on where the underlying stock is trading relative to its VWAP (Volume-Weighted Average Price).
Because I’m not usually a swing trader or long-term investor (there are occasional exceptions), I look to be in and out of my positions in the same session — I don’t like holding things overnight.
That means I trade fast & furiously some days — a pace that can present challenges to speculators used to giving their entries and exits more breathing room.
So today, I want to outline 5 things you need to successfully day-trade the 1-minute VWAP:
- A solid, reliable trading platform
I use TD Ameritrade’s ThinkorSwim (TOS) platform to chart the 1-minute VWAP — as you’ve seen on my This Is VWAP show — and I also have CUSTOMIZED CODING to generate multiple time-frame VWAPs on the same chart.
I’ll let you know the next time I have a special coding session to replicate my charts, but in the meantime, here’s how to add standard VWAP to your own TOS charts.
To actually PLACE my trades, I occasionally use TOS, but more often than not I use Lightspeed or E*TRADE.
You should use whichever platform(s) you feel comfortable with, just make sure it’s reliable, because time is of the essence when day trading. Stock and option prices move FAST.
- The nimbleness of a ninja
Because day traders have positions on for just a few hours or less, they have to be lightning-quick to catch precise entries and exits…
Waiting too long to execute or close a day trade could cost you money, especially when you’re trading extremely volatile and liquid stocks , as I often do with VWAP.
If you work full-time and don’t have the bandwidth to trade all day, everyday — don’t worry. I don’t spend every waking moment in front of the computer screen; my goal is to make a day’s pay by the time “The Price is Right” comes on at 11 a.m. ET, and everything after that is just a bonus.
So even if you have just 30 minutes to trade the 1-minute VWAP each day, that’s fine — just make sure your trading fingers are nice and limber in that time frame.
- Stops in place
Although I strive to be nimble and agile in my day trading, I can’t possibly stalk my open positions every single second…
And because I NEVER take any position off at one price, I set stops and profit targets out of the gate.
These typically coincide with the short-term VWAPs and key levels I’m watching, including double tops, previous lows, price points aligning with critical pre-market candlesticks, and others. During my This Is VWAP hour, you can see these levels via the red horizontal lines on my charts.
Having stops in place allows me a little breathing room while actively trading — I know I won’t miss a big move against me and get wiped out because I took a coffee break.
- A SHORT list of stocks on the watchlist
I’ve learned this lesson the hard way, so if I can prevent any heartache for my VWAPian friends, please heed this advice: Too much stimuli can lead to poor trade management.
In other words, the more stocks I try to watch each day, the less attention I can give each of them — which has led to me missing out on ideal entries and exits.
To start, I suggest you hone your own VWAP watchlist to 2-4 stocks per day, and you can always build from there as you grow comfortable.
This should allow you the mental bandwidth to stalk the shares and their key intraday candlesticks, so you can execute at the exact right time.
Personally, I usually keep several earnings movers on the Warlock Watchlist, as they give me the volume (the basis of VWAP, after all) and volatility I’m looking for.
When it’s not earnings season, I’m simply looking for anything moving big — in pre-market action or beyond — so I keep tabs on the Wall Street headlines. This includes analyst upgrades and downgrades, which I’ve found often coincide with short-term tops and bottoms, respectively.
I also keep a rotating list of recently successful VWAP trades, and I like to go back to the well; if it’s been working for me, why fix what isn’t broken?
So, FINDING stocks for my watchlist usually isn’t hard — the harder part is making sure I don’t heap so much on my plate that I can’t enjoy the food, know what I mean?
- An understanding of the rules
Finally, and perhaps the most important thing to know about day trading, is there are RULES.
If you day-trade four or more times in five business days (meaning you open and close the positions — including options — in the same session), and day trades account for greater than 6% of your entire trading activity in those five days, congratulations — you’re considered a Pattern Day Trader (PDT) by the powers that be, per FINRA.
A PDT must maintain minimum equity of $25,000 in their account.
They can trade up to four times the maintenance margin excess in the account at the previous close, but if they exceed the buying power limitation, the brokerage firm will issue a day-trading margin call. The PDT then has a set number of days to meet the call, or risk trading restrictions.
This is another reason to keep your watchlist relatively small — you don’t want to blow your entire trading leeway on a handful of stocks you’re only lukewarm about.
For more on the PDT rule, check in with your brokerage firm. (Of course, you can find prop trading firms, but you’ll have to pay for access.)
So, hopefully now you have a better understanding of what it means to be a day trader — and if you have the five assets above, you’re already ahead of the curve to trade the 1-minute VWAP like me.
Look for more on this in your regular This Is VWAP newsletter, and make sure to catch my LIVE trading show right here, every weekday from 9:30 to 10:30 a.m. ET!
8 responses to “5 Pillars of Successful VWAP Day Trading”
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June 14 2021
Thank you Kenny.
Yes, Schwab says I’m a PDT. Been following you on MML since early June. Learning a lot. Hope to learn more.
Thank you so much ! Really enjoy the show.
Learning this system
I’m thick headed so I like things to be simple. VWAP seems simple enough. One question, why would you short the Q’s instead of just buying the PUT? I told you I was thick headed.
I’m very excited about VWAP where it’s going to take me. Thank you for sharing!!! See you on the show!
I’m new but I’m ready. Morning everyone!
Hi Kenny! I’m a PDT with Charles Schwab and not doing so good in my trades. I’m new and would like to learn from the bottom about your VWAP method! Thanks, I really enjoy your show.
Older lady need more income and would love ❤️ to do this Vwap but can’t pick it up sooooo fast anyway Kenny can offer us a one time step by step outline this is sooo hard for me to figure out soo fast.. want to trade.. thanks ? Margie (you already have my email)