This Is How You VWAP
Hey there, VWAPians!
Did you catch the COUP?
I know some of you did… but that’s not what I’m here for today. There’s a much bigger issue at hand.
If nothing else, I want to make this point – it’s okay to miss trades.
Let me say that again.
It’s okay to miss trades.
This was not a trade for everyone. A $270 stock with a 7-point spread on the open? Forget about it.
While the trade itself worked out, it gave my still-sick stomach a workout as well.
My point being… You are here to LEARN.
Jumping into a trade like Coupa Software (COUP) before you know what the hell you are doing is a recipe for disaster, trust me.
So I’m not here to congratulate those who smashed the trade (congratulations, by the way, it WAS a great trade), nor am I here to act like everyone should have been able to catch it.
I’m here to share the education around the trade because, after all, that’s what this is all about.
And COUP, love it or hate it, was a classic earnings reversal fade – where the fade becomes the sell-off and the sell-off becomes the crash.
Just sit back, relax, watch me trade live at 9:30 a.m. ET each day, and learn from the VWAP.
But you can learn from them. The more you learn the process, the better you will be at spotting trades ahead of time.
I know it can be hard to follow in the heat of a trade, so today I’m going to look back at the COUP trade, while there’s no pressure to trade it, so you can actually learn the process here.
Earnings Beat, Stock Fades
This was a classic earnings reversal fade… and a great teaching moment.
These trade setups don’t just happen out of the blue.
It all starts long before the entry.
When a company is set to report earnings, I want to see how the stock reacts to the earnings release – and mark the price levels on the chart.
Take a look at the chart for COUP below.
Earnings came out, and the stock popped over 30 points… that’s massive.
But it doesn’t end there. Oh no, there’s more.
Next up is the conference call. This is when the CEO and all the “suits” do the dog and pony show for the analysts, blah.
At this point, the stock will make a secondary reaction.
Back to the chart below – COUP sank nearly 30 points on this secondary reaction.
The highs and lows of these moves often become significant inflection points, so it’s important to mark these prices on your chart.
I do this every night and morning.
I will also mark any other significant levels that stick out to me, such as the middle line I marked on the chart below which shows where the stock bounced to after the move down.
It’s important for you to mark your own lines on your charts. If you want to learn this stuff, you have to spend the time and do the work.
But don’t worry, after some practice, you’ll get better at picking levels and knowing what to watch for as the stock trades around them later.
Chart: courtesy of thinkorswim
The next step is to see what happens in the premarket and mark any new levels that stand out.
For example, COUP hit a premarket low right at the same lower level I marked the night before (seen in chart below).
Coincidence? I think not.
Enough of the planning phase, let’s put it all together.
Looking at the chart below, COUP broke below the VWAP first thing in the premarket and made a move to the red line marked the night before (this is why I take the time to find the levels).
After bouncing there, it wasn’t able to retake the VWAP and then it happened… COUP broke below the premarket low (same level marked the night before) going into the open.
Can you imagine sitting in that, thinking you are up nearly 40 points after earnings only to see it evaporate right after, THEN waking up in the morning to see the stock heading further down?
Not only did you lose a 40 point gain, now you are looking at losing even more.
That my friends is when the final domino falls… all those people that missed their chance to get out last night and this morning start running for the exit to protect what they have left.
Chart: courtesy of thinkorswim
And my job is to take advantage of them.
When you have VWAP telling you what levels you should be concerned about…it’s a great feeling.
Chart: courtesy of thinkorswim
When the fade becomes the reversal, it’s the best trade you will ever take in your life. You were there yesterday when I took this trade LIVE, and you saw what happened.
By no means should everyone have been able to jump on the COUP trade yesterday morning.
It was not for the faint of heart, and definitely not for the inexperienced trader.
But everyone CAN see the setup and learn from it.
Imagine that same setup in a lower priced, less insane stock.
Now you’re speaking my language.
That’s exactly what I’m looking for every day, and should definitely be there to “learn along” with me.
Don’t miss me first thing this morning right here in the Money Morning LIVE room when I join the Money Morning fam in the premarket show, starting at 8:30 a.m. ET, to talk about the stocks I’m watching for the day.
And of course my regularly scheduled programming from 9:30 a.m. ET – 10:30 a.m. ET, where you’ll catch me trading LIVE every day.
Kenny “The Warlock” Glick
Comments
September 09 2021
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