I hope you had a great weekend!
If you caught this morning’s show, you know Virgin Galactic (SPCE) and Alfi Inc. (ALF) were on my early Warlock Watchlist.
In fact, I hit all my targets on the early short SPCE play, before it became a trade on the long side at the multi-day VWAP.
Against this backdrop, today I want to dive deeper into one of my all-time favorite VWAP Knowledge Bombs – one you’ve heard me say during just about every live trading show I’ve done.
It’s one of the few Knowledge Bombs that applies to pretty much every single VWAP trade I make, outside of my late-week option trades…
If I buy or short shares based on their 1-minute VWAP, they’re automatically subject to my self-imposed rule: Never exit your entire position at one price!
So today, I want to outline where I might exit positions and where, and how I mark up my VWAP charts.
Knowledge Bomb of the Day
As alluded to earlier, today’s Knowledge Bomb of the Day has to do with getting out of my positions…
Let’s dive right in with a look at a hypothetical trade on XYZ.
Say the company reported earnings at 7 a.m. ET, and the stock gapped lower at the opening bell, before breaking back above the VWAP early in the regular session — one of my favorite trades for earnings season.
We’ll say XYZ broke back above the 1-minute VWAP around $20.18, and that’s where I bought 1,000 shares to day trade.
That VWAP would then become a partial stop for me on the downside, if the shares pulled back to breach this living, breathing trendline.
The multi-day VWAP — which is my customized trendline — overhead would be a target at which I’d also take some profits, because remember: Blue line (1-minute) to orange line (multi-day) is what I’m all about! (I check multiple days to see if there are more areas of significance, but my go-to chart is the 1-min/1-day combo.)
Prior to entering the trade, I also would’ve plotted a range based on previous highs and lows, which helps keep me disciplined and takes a lot of the guesswork out.
So if the stock’s pre-market high was $22.40, and its pre-market low was $18.60, those are levels I’d be watching and flagging on my charts to take some profits or losses, respectively.
Outside of those levels, I’m watching round and half-dollar numbers, like $20.50, $21.00, $21.50, and so on.
After trading for 30 years, I’ve learned that whole and half numbers are especially magnetic the closer you get to options expiration each Friday, because most options are priced in whole- or half-dollar increments.
I’ve also found that if a stock breaks above a whole or half number, it often goes to the next whole or half number – so a break of $21.50 might get you to $22, and so on.
In addition, cruising past an all-time high (a Blue-Sky Breakout) or low can often leave the shares without a proverbial safety net, but these numbers can also be tested several times before they break. Depending on the individual trade and what I’m seeing, I might also flag these levels at which to take profits or trim my position, when applicable.
Whether winning or losing, I often exit my position in fifths.
For instance, if I bought 1,000 shares of XYZ, I might take profits on 200 of those shares at the first benchmark, another 200 at the next target, and so on. And it’s the same on the flip side with losses, if XYZ moved against me.
However, I do let the last fifth of my shares ride – you could call this the “screw it” money.
This remainder of my position will usually either go parabolic or get stopped out, but keeps me in the game and nimble – a key quality of successful day traders.
Of course, it’s important to remember that trading is an individual sport, and should be done based on your personal risk tolerance and comfort level. So what’s good for the goose may not be good for the gander.
All I can explain is how I feel comfortable trading, so you do you!
See you bright and early tomorrow.
Kenny “The Warlock” Glick
5 responses to “How I Exit VWAP Trades”
June 28 2021