What VWAP Really Stands For (or Should)
Hey there, VWAP family,
I started the week dropping some big-league Knowledge Bombs during my usual 9:30 a.m. ET LIVE trading hour, including my thoughts on the stock market heading into September.
However, even though the market doesn’t wanna die, don’t get lulled into a false sense of security – there IS a way to blow up your account with a quickness.
In fact, both my ego and my trading account took a significant hit Tuesday morning – and because I like to be transparent with my VWAP family, today I’m going to tell you all about it so you don’t make the same mistakes.
Let my losses be your lesson.
And speaking of giving you the best trading education possible, mark your calendar for 3:30 p.m. ET tomorrow, when I’ll be TRADING THE CLOSE LIVE with Mark Sebastian!
Mark isn’t only the Felix to my Oscar, he’s usually the smartest (and nicest) guy in the room, and he’s kind enough to carve time out of his busy schedule to drop some Options Knowledge Bombs on us tomorrow.
We’ll be stalking stocks and options that could come into play Friday morning, and make sure you have a pen and paper handy to jot down Mark’s tips on playing options with minimal risk and bigtime profit potential.
I explained yesterday that, since early 2009 (around the end of the financial crisis), the government has been propping up Wall Street, which has survived everything from political unrest (at home and abroad) to a global pandemic.
Stock indices hitting all-time highs feels like a daily occurrence, and more often than not, bullish positions in the Invesco QQQ Trust (QQQ) have been money in the bank.
Well, money it’d take you 657 YEARS to make in an actual bank.
And when we aren’t buying the Qs or QQQ call options, there’s been more than enough market momentum and liquidity to fuel some wild VWAP wins in 2021.
Plus, along with the government, we’ve seen a boatload of money flooding into the retail side in 2021 – something Mark Sebastian talks a lot about in his Profit Takeover newsletter.
I mean, anybody remember the crazy GameStop (GME) run by the Reddit crowd?
So against this backdrop, and considering the ideal VWAP stock is one that’s relatively liquid and making big moves (usually on earnings), it’s been a banner season for the ol’ VWAP day trader…
IF they’ve been trading the right stocks and following a few VWAP rules (a couple of which I broke on Tuesday).
By NOT following these rules, day traders risk blowing up their accounts even amidst the best VWAP-trading environment I’ve ever seen.
What VWAP Means… And What It Should
“VWAP” stands for Volume-Weighted Average Price, so the more volume there is, the more potent this indicator – which triggers many an algorithm – becomes.
But “VWAP” can also serve as an acronym for the four qualities every VWAP trader should possess:
- Vigilance
The VWAP trader must be vigilant in their chart stalking, because “buy” and “sell” signals happen fast, as anyone who watches me LIVE at 9:30 a.m. can attest.
After all, we’re looking at 1-minute candles, and walking away from your laptop when stock is on the cusp of a post-earnings VWAP break or a blue-sky breakout could be the difference between a juicy profit and missing your entry.
And because you need to be so dialed into the minutiae, you should also be vigilant in keeping your daily watchlist to a minimum – I’d say no more than five stocks at a time, but the smaller, the better.
Vigilance should also be applied when making and executing a trade plan.
Don’t go into a VWAP trade without having stops and targets in place, and make sure to never exit your entire position at one price.
- Wisdom
Here’s where I messed up Tuesday morning; I wasn’t wise in the stocks I traded.
Specifically, I got burnt on a couple of biotech stocks that, in retrospect, were Pump & Dumps.
I warned you earlier this week that stocks that skyrocket a jaw-dropping amount in a short time frame can also plummet in a short time frame.
I mean, remember Support.com (SPRT)? A stock that TRIPLES in less than a DAY is bound to get dumped after a pump eventually, which is why it also FELL more than 50% in less than a day.
SPRT popped late last week – courtesy of ThinkorSwim
You have to be careful with stocks like these – and the biotech sector, in particular, has burned me lately when I wasn’t careful, with AC Immune (ACIU) and RenovoRx (RNXT) getting the best of me early Tuesday.
- Adaptability
Sure, if you don’t like messing with options or short selling, you can certainly trade 1-minute VWAP just buying the shares on bullish patterns and earnings reversals.
But the best way to truly reap the benefits of the 1-minute VWAP is to play both sides of it, and be adaptable in your strategies.
For instance, instead of buying shares outright, sometimes it makes sense to buy call options for more leverage.
Or, maybe the VWAP on a stock you traded bullishly earlier is telling you to switch teams.
In that instance, you can take advantage of downside price action by either shorting the shares outright – what I do a lot of the time – or by buying put options (the less risky of the two).
Being able to trade on the bearish side of the aisle doubles your opportunities to profit, allowing you to make money when you’re on the right side of the VWAP both ways.
If I wasn’t adaptable and able to put on quick bearish trades, I would’ve missed out on yesterday’s awesome trade on Corsair Gaming (CRSR), which you watched me short LIVE at 9:30 a.m.
- Punctuality
Trading VWAP is all about timing – especially when you’re day trading.
We’re constantly stalking stocks with serious momentum, and that means things can move FAST.
Timing your entries and exits is crucial to making money in this game, so you have to be quick on the trigger, and take profits along the way.
When you’re staring at a 1-minute chart, waiting for a stock to break out one way or another, even a lengthy coffee break can mean you missed your window.
So know what you’re waiting for, and be ready to act – and sometimes even babysit – when it happens.
Finally, I’ll add one more trait that every VWAP trader should have:
- Humility
The ideal VWAP trader has no ego.
They accept that they know nothing – except that the VWAP will guide them and correct them.
And when they’re wrong, they say they’re wrong, they learn from their mistakes, and they teach others.
See you in the room at 9:30 a.m. ET, and don’t forget to MARK your calendars for 3:30 p.m. ET tomorrow for a special session!
Kenny “The Warlock” Glick
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September 01 2021
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