A Risk/Reward Lesson From an Ex-Scalper
Hey there, VWAP fam!
If you’re not in this room watching me trade LIVE each day, starting at 8:30 a.m. ET on Money Morning LIVE, I want you to look at my face…
Look me in my eyes and explain why you choose to be on the wrong side of VWAP and, thus, life.
I’m waiting, Blanche!
Because if you aren’t watching me trade LIVE during my daily 9:30 a.m. ET This Is VWAP hour, you’re not only missing a day-trading CLINIC with real-time stock ideas…
You’re missing some top-notch WARLOCK EDUCATION.
Remember – I’m not here to spoon-feed you trades or tell you when to push a button. I don’t want to be a stock-picking monkey or your broker – I want to be your teacher.
Lucky for you, if you aren’t able to hop in the LIVE room at 9:30 a.m., I’m here to drop some written Knowledge Bombs.
I want to bring everyone I can into the light, so they can do it all on their own – and that includes not only independently identifying potential VWAP trading ideas, but also spotting key chart patterns and risk/reward setups… like we saw with Nordstrom (JWN) yesterday.
How to Spot a Scalper
After reporting earnings, JWN was on my pre-market watchlist, and we discussed it on Money Morning LIVE ahead of the bell.
Be sure to check the Announcements in the room
The stock had fallen below the 1-minute VWAP in pre-market action – the shaded area of the chart below – and initially tried to break above it at the opening bell.
However, JWN shares were swiftly rejected at the blue line, in what we call the “kiss back,” making them ripe for a short-selling opportunity.
1-minute chart of JWN at the open Aug. 25 – courtesy of ThinkorSwim (TOS)
But because stocks that gap down on earnings usually find buyers, just before 10 a.m. ET I put JWN on watch for a potential buy, should it break back above the 1-minute VWAP – which was around $31.81 at the time.
Later in the opening hour, I thought perhaps Nordstrom stock may have been putting in a bottom around $31, but I still wanted to be patient.
While $31 is a whole number – which is an important level as a VWAP trader – I always warn fellow traders to never pick a bottom, let bottoms pick themselves.
So I left JWN on watch, looking for that “buttcrack pattern” or a double bottom to signal a bounce.
Still, the shares seemed to be caught in an unusually tight range.
It soon became very clear what was happening: There was a behind-the-scenes battle being fought by JWN buyers and short sellers around the $31 level, and the buyers were clearly winning (or else the stock would’ve made a definitive break south).
More specifically, it was apparent the Nordstrom SCALPERS were making some quick & dirty profits.
Risk/Reward Lesson from a Former Scalper
I’ve been in this game 30 years, and scalping used to be my bread & butter.
For those unfamiliar, this practice is simply high-frequency traders making low-risk bets and taking fast profits within seconds.
And while many day traders are limited by the Pattern Day Trading (PDT) rule, these scalpers most certainly are not – and there are still lessons on risk/reward to be gleaned by this group, even if you’re putting on just a few trades a week.
See, all they were doing with Nordstrom stock was buying just above the $31 level – say, around $31.03 – and putting their stop at $31.00.
They’d then ride JWN for a few pennies – say, to around $31.20 – and then sell it for a profit.
Sure, a 17-cent profit doesn’t seem like much on paper… but multiply that by a few thousand shares at a time, and then by half a dozen trades or more, and your day’s pay starts to add up!
I spotted JWN scalping around 10:20
But the real lesson here is about risk/reward.
If you have the opportunity to grab a stock just above proven support, like a whole number such as $31, does it not make sense to set a stop at the whole number?
That means the aforementioned scalpers who bought at $31.03 and set a $31.00 stop were risking just 3 cents – those who dumped it at $31.20 enjoyed a 17-cent gain, but others may have let it ride even higher.
Or maybe they were like me, locking in profits in stages, which is even better.
Either way, the potential reward far outweighed the risk – and isn’t that the kind of trade we’re ALL looking for?
In conclusion, make sure you’re in the room when I’m LIVE trading at 9:30 a.m. ET each morning, because I’ll be dropping even more fresh Knowledge Bombs you don’t want to miss.
But if you can’t join me in the mornings, don’t worry – just keep an eye on your inbox and catch my replays right here.
Kenny “The Warlock” Glick
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One response to “A Risk/Reward Lesson From an Ex-Scalper”
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August 26 2021
Hay, (MF), my friend,
Question for you, but before I get to the question, let me inform you that I have taken your advise and placed Vwrap on all of my computers.
Now the question, but before I get to the question, how about a joke?
You see this old guy I went to shool with 40 years ago gives me a call and we bull shit each othe for an hour, then he asks me how my wife is, my answer to him is, oh, my angel and he says Boy are you lucky mine is still alive.
Well now the Question, Do you have a time line when you think—- you will be spending time explaining the Vwrap? I bet you thought after all this You thought I was going to give you a glowing writh up how great a traker you are, You want me to give you a 3 out og 10,
Sorry Charley, I give you an 8, Why the 8 you ask, because I want to try harer to get to 10. Great talking to someone that is mute. Have a great day, Your (MF)