What Is VWAP, Anyway?
Hello, VWAP heads!
My goal is to provide you with top-notch education about the only trade you’ll ever need — VWAP — so that you can apply my methodology to your own trading.
Because trust me — I’ve been doing this a loooong time, and I’ve lost plenty of money trading other indicators and chart patterns.
VWAP is the holy grail, and I want to be the trading prophet who changes your LIFE.
But before you can trade VWAP, you kinda need to know what it is, don’t ya?
First, let me reiterate that the best way to understand how I trade is proximity — so if you aren’t already watching my This Is VWAP hour at 9:30 a.m. ET each trading day, what are you even doing with your life?
Tune in right here and Ask Me Anything in the chat!
But if you can’t catch my show live each morning, don’t worry — you can find replays here, and I’ll be doing deep dives into my trading principles and patented VWAP Knowledge Bombs in my This Is VWAP newsletter.
First, though, let’s start with the ABCs of VWAP and some Frequently Asked Questions (FAQs).
What Is VWAP?
VWAP stands for Volume-Weighted Average Price, and for the Einsteins out there, here’s how it’s calculated, according to TD Ameritrade’s ThinkorSwim (TOS) platform, which is what I use on my show:
For the majority of us too stupid to understand ^^that^^, it boils down to this:
While most indicators show a stock’s average price or relative strength over a comparatively lengthy period of time, VWAP offers a REAL-TIME look at the underlying volume – showing me price points at which the transactions are happening.
VWAP is expressed as a trendline, and the stock’s location relative to this line tells me whether the buyers or sellers are in control… and which side of the aisle I should be on to make money as a day trader (more on that in a minute).
See, VWAP often acts like a MAGNET — shares never stray too far from the trendline for too long. This makes it easier to determine if an equity is overextended in one direction or the other, and how to best play that short-term mean reversion.
Along with basic price points like whole and half numbers, VWAP also helps me identify key levels where I should take profits or set stops on my positions (because I never close my entire position at one price).
How Do I Get VWAP on My Charts?
I use TOS for charting, but VWAP is also available on a few other trading platforms.
In TOS, you can add the standard VWAP to your charts by going to Studies > All Studies > V-W > VWAP.
This should provide you with three lines — the upper deviation band is essentially an overbought level, and the lower band is an oversold level, both plotted a specified number of standard deviations (based on the difference between the stock price and VWAP) above VWAP, which is the middle line (in purple above).
You can check out a quick video tutorial on adding VWAP right here.
To get VWAP on a platform outside of TOS, ask your broker or the platform’s customer service team how to add.
Why Doesn’t My Chart Look Like Yours?
It should be noted that I use a custom VWAP code for my charts, so what you see on your platform won’t look exactly like mine. I’ll be having a coding session sometime in the near future, and I’ll let you know how to copy.
When watching me trade live on This Is VWAP, the BLUE LINE is the VWAP — typically on a 1-minute chart, because I’m a day trader.
This means I trade on an extremely short-term basis; I don’t like to hold anything overnight.
The dashed lines are customized multiple time-frame VWAPs, and the horizontal red lines are areas I plot myself to watch for potential profit-taking or stop-loss levels.
Are You Bullish or Bearish?
As I stated previously, I’m both!
If a stock is breaking below the VWAP, like you can see in the Ford (NYSE:F) chart above, I’m usually looking to put on a quick short position.
If a stock is making a strong move above the VWAP, like in the Futu (NASDAQ:FUTU) chart below, I’m usually looking to put on a short-term long position.
Either way, I don’t hold my positions for long — I get in and out like a ninja!
That means I could have a bullish position on Stock XYZ at 10 a.m. ET, close it by noon, and have a bearish position on Stock XYZ by 2 p.m.
Of course, it’s not as simple as all that… There are frequent Fakeouts, Shakeouts, and Breakouts if you don’t understand the nuances of the VWAP dance, which is why you should be tuning into my live This Is VWAP session every day!
Are You Playing the Stock or Options?
Also both! However, more often than not, I’m either buying the shares or shorting them outright.
It should be noted that selling stocks short is extremely risky — don’t try this at home until you know what you’re doing and can recognize and accept the risk.
Occasionally I will either buy call options on a stock I expect to break out above the VWAP, or buy put options on a stock I expect to move south of the trendline.
Using options provides lots of leverage, meaning I can often get more bang for my buck that way.
When I do trade options, I’m usually looking at the series that expires the soonest — often weekly options expiring the upcoming Friday. That’s because I’m a day trader, so I don’t need to pay more than I have to for time value.
I also like to target at-the-money (ATM) calls and puts, buying strikes that closely align with the underlying stock price at the time.
However, when a company is set to report earnings in the next day or two, I usually avoid buying options.
Purchasing options ahead of earnings means I’m not only GUESSING the direction of the reaction — I’m also paying 20% to 30% more premium, which becomes inflated and expensive the closer earnings get. NO THANKS.
How Do You Come Up With Your Warlock’s Watchlist?
I’m looking for stocks that can MOVE and have LIQUIDITY.
Because I want volume and volatility, I usually keep close tabs on the earnings calendar.
When it’s not earnings season, I like to watch pre-market movers with headlines — that could be a biotech stock making noise on Food & Drug Administration (FDA) news, a so-called “Reddit stock” (I prefer “me stock,” but I digress), or something else!
I also keep tabs on some upgrades and downgrades, as I’ve found that by the time a stock scores an upbeat analyst note, it’s usually close to the top already, and vice versa on downgraded stocks nearing a bottom. So occasionally I’ll hunt Upgrades to Fade and Downgrades to Raid.
Look for more on these in my regular This Is VWAP newsletter, and catch an early glimpse of my daily watchlist at 8:30 a.m. ET, where I’m a panelist for Money Morning Live — catch it right here!
Then stay tuned for a FULL HOUR of your boy.
Starting at 9:30 a.m. ET each trading day, catch 60 minutes of the best VWAP trading you’ll ever see — this is the principal way to grasp my methodology, if you’re a visual learner, and more often than not I’ve added even more setups to my watchlist than what I was stalking during the pre-market hour.
June 14 2021
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