The Only Time It’s OK to Hold a VWAP Trade Overnight

Hey there, VWAP fam!

If you aren’t in the LIVE trading room watching me right now, you’re on the wrong side of life, my friend!

I kid, of course, but for all the new kids on the block, you can catch me and my buddies on Money Morning LIVE at 8:30 a.m. ET each day, followed by a full hour of The Warlock starting at 9:30 – all right here.

The best way to truly understand the ins and outs of VWAP and how I trade is to witness the magic in real time, but I also like to do deeper breakdowns of some of the Knowledge Bombs I drop on air right here.

And today, I don’t necessarily want to go over one of my VWAP-trading “rules” with you… but rather, I’d like to discuss an exception to one of my trading rules.

No, it’s not the exception to my “Never short the Qs!” rule – we’ve chatted about that plenty.

I mentioned this one briefly during Tuesday’s LIVE trading session, as we all watched an early Alibaba (BABA) short squeeze play out…

Yes, today I want to dive into the ONLY time it’s fine to (pearl clutch!) hold a trade overnight.

This Might Shock You, But…

Those of you who’ve been following me for a while already know how I usually feel about holding positions past the closing bell… I HATE IT.

I’m a day trader – which means I want to be in and out of my positions the SAME DAY, and sometimes even the SAME HOUR, BLANCHE.

I’m not an investor willing to ride a few blips and dips on the charts in exchange for a long-term stake in a company I fundamentally believe in – I prefer to be way more basic than that.

I’m also not willing to lose any sleep over my positions, so I typically like to leave my proverbial trading baggage at the door come 4 p.m. ET.

I don’t like to be a bagholder

In fact, I like to tell the story about my dad, Big Al, who said he loves being a grandfather because he gets to re-enjoy the best parts of parenting… but at the end of the day, they’re someone else’s problem.

THAT is how I treat VWAP day trades – like my future grandkids, whom I will love and spoil and fill with sugar, then ship back to my kids.

So as a VWAP day trader, things like balance sheets mean SQUADOOSH to me, because I’m making extremely short-term moves.

Reacting to the 1-minute VWAP is the only thing I care about.

I say all this to preface what I alluded to earlier… that as much as I abhor holding positions overnight, there is one situation that’s an exception to my rule, as we saw with BABA yesterday.

The Exception to the Rule

Ready for it?

The only time I’d EVER suggest holding a trade overnight is if you buy into a bottom relatively early in the day, and the stock spends the rest of the day rallying into the close, like BABA Monday afternoon and evening.

1-minute BABA chart on Monday, Aug. 23 – courtesy of Thinkorswim (TOS)

So, in a nutshell, if you’re already up pretty huge on the trade heading into the close – and assuming you’re playing with the leftover “screw it” money after taking profits on the way up – it’s okay to hold into the close.

Most of the time, people hold stocks overnight for the WRONG reason – because they’re down on the position and riding it on hope and faith, praying for a rebound.

They rinse & repeat this cycle until they’re officially a bagholder, sitting on worthless shares of Enron or Funko.

However, if you DO hold a position overnight and it continues to rally into the next session, get ready the following morning – after a gap up, you’ll typically see widespread profit-taking around the open, and the stock can fall quickly.

That’s why I never buy into bull gaps – but that’s a lesson for another day.

See you in the room, VWAPians!

Kenny “The Warlock” Glick

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