Hey there, VWAPians!
One question in particular stands out, brought to my attention by my broadcaster Eric (aka Bababooey).
The question came from someone relatively new to the VWAP world, who wanted to know how to start trading the only indicator you’ll ever need.
See, sometimes I get so involved in banking on big-time stock movers like SPRT and GMBL that I forget to slow it down for the freshmen out there looking to get on the right side of VWAP (and, thus, life).
So today, I’m gonna back that thing up and tell you how to get started with VWAP, and we’ll go over a few of the stocks that could pop up on my daily Warlock Watchlist this week.
What is VWAP?
You can click right here to watch the entire clip, but I’m also going to break it all down for you step by step here.
VWAP stands for Volume-Weighted Average Price.
The blue line on my charts is the 1-minute VWAP, and it’s THE ONLY LINE THAT MATTERS IN THE STOCK MARKET.
Blue line is the 1-minute VWAP
I’ll explain why that is in just a moment.
I also employ a multi-day VWAP that requires a custom Thinkorswim code, but the 1-minute VWAP is the basis for almost ALL of my trading; you don’t need the multi-day to make money with VWAP.
We have some very smart people building us proprietary charting software that won’t require a custom HTML code on a specific platform, and my This Is VWAP crew will be first to know when it’s ready!
In the meantime, if you have Thinkorswim (TOS), you can add the 1-minute VWAP on your charts by going to Studies/All Studies/V/VWAP and looking at a 1-minute chart.
A few other platforms outside of TOS also have the 1-minute VWAP available; call your broker or your platform’s customer service line if you’re unsure, and make sure you COMPLAIN if they don’t.
Why is VWAP important?
The entire stock market revolves around algorithms now – the days of sending trade alerts to your broker via smoke signal are over, Blanche.
The blue line – 1-minute VWAP – is telling you where institutional money is going into the market.
Take Salesforce.com (CRM), for instance. You can see on the chart below that once CRM shares broke back above the 1-minute VWAP, they picked up steam and moved even higher.
CRM 1-minute chart on Aug. 27, 2021
That’s no coincidence.
When a stock makes a definitive move back above the 1-minute VWAP, that tells us that the REAL power players in the market (and that ain’t me – I’m an insignificant bug on the back of this beast) are putting money in, and that’s what gives us the volume.
When a stock makes a move back below the 1-minute VWAP, it tells us power players are hitting the exits.
How do I trade VWAP?
Now that we’ve established the importance of VWAP, if I say, “This stock is breaking back over the VWAP” during one of my LIVE 9:30 a.m. ET sessions, you’re gonna think, “Institutional money is getting into this stock – maybe I should buy it.”
On the other hand, stocks making decisive moves back BELOW the 1-minute VWAP often present opportunities on the bearish side – I might play this pattern by either shorting the shares outright or buying soon-to-expire put options.
Of course, VWAP trading is more nuanced than that, but that’s the gist of it. To best educate yourself on the ins and outs, it’s important to be in the room watching me each morning.
Whether long or short, though, make sure you’re not in the position too long and never overnight!
I’m a day trader who makes fast moves based on the 1-minute VWAP – I’m not an investor looking for long-term gains here, and I’d rather DIE than be a bag-holder.
I like to get in and out of trades quickly, and set stops and targets along the way, so I never exit my position at one price.
How do I know which stocks to trade?
In order to best trade VWAP, you need stocks that are liquid and moving – not some slow-burning tortoise stock.
So I’m often hunting earnings reversals or stocks with major momentum that day.
This week, for instance, you might find me trading stocks like Zoom Video (ZM), Ciena (CIEN), and Broadcom (AVGO), all of which are slated to report earnings. (You can find a condensed weekly earnings calendar on the ThisIsVWAP.com home page.)
I suggest picking 10 stocks that are moving each morning, and then whittle that watchlist down to 4-5.
In fact, each morning I’m doing most of the heavy lifting FOR YOU, giving you my daily Warlock Watchlist – found at the top of ThisIsVWAP.com each morning (and get a sneak peek at 8:30 a.m. ET when I’m on the Money Morning LIVE show).
Daily Warlock Watchlist from Friday, Aug. 27, 2021
You want to keep your watchlist on the smaller side, because day trading is a fast sport, and watching too many stocks means you could miss a big move or VWAP break.
Then, once a stock lands on my daily Warlock Watchlist, I usually watch it for 2-3 more days, because sometimes I can squeeze even more out of it, depending on volume.
If it becomes a go-to stock that I’m trading regularly, like Peabody Energy (BTU) – literally one of my FAVORITE stocks all year – it will land on my rolling Warlock Watchlist, which is a group of stocks I continue to stalk when there’s not much to do.
Then, to see WHICH stocks I’m actively trading around the VWAP each morning, make sure you’re in the room right here at 9:30 watching me do it IN REAL TIME.
Otherwise, you might just miss out on breakout stocks like SPRT and GAMB…
P.S. – Keep an eye on your inbox this week… I may have a couple VERY SPECIAL VWAP SESSIONS to put on your calendar.
Kenny “The Warlock” Glick
August 30 2021