Good morning, VWAPians!
I love the start of a new week, especially right now.
This has been some of the best day trading I’ve seen in my whole career.
Between the insane names, IPOs, currently confused market, and earnings season nearly upon us… this is when trading around VWAP shines.
Today, I’m talking about something many “experts” in this business shy away from: Losses.
That’s right, VWAPians… your fearless leader is not always right. (Most of the time, but not always.)
Stay Liquid, Stay Sane
The truth is… it’s all part of the game. Anyone who tells you they don’t lose on occasion is lying.
You ARE going to lose. That’s not the problem.
What’s important is how you handle them and adapt.
The difference between a professional trader and a losing trader?
The professional trader Accepts, Manages, and Learns From their losses.
Today I’m going to highlight a loss I took on my AMC trade Friday morning, and show you the difference between a bad loss and a good loss.
NOT REALLY A LOSS
Friday morning, I took a trade in AMC Entertainment Holdings (AMC).
Some of you know AMC as the movie theatre chain, and others will know it as one of the infamous Reddit short-squeeze stocks.
But none of that matters when you’re trading VWAP (VWAP is the only thing that matters).
And AMC was setting up with a potential dip & rip trade on Friday.
Enough so to get me in at $40.15… and then die.
I’m in… and I’m out, goodnight.
In fact, in the end, I was able to laugh about it — because I managed my risk.
Two important things to understand about this trade:
- I only took 100 shares to “test the waters” — or “dip my toe in,” so to speak.
- I knew where my stop was before getting in… resulting in a relatively small loss.
Specifically, I put a tight stop on the trade knowing that if it got back below the whole number of $40, it would be dead.
From my entry at $40.15, that’s just $0.15 of risk…
And considering I dabbled with a relatively small position size to begin with, I could swallow that loss and move on to my next VWAP victim.
The fact is, if you want to make it trading, having a plan for every trade is a must.
With AMC on Friday:
- I saw the setup.
The stock opened above the 1-minute VWAP (blue line) and then traded down below it (the dip).
AMC then bounced off the premarket lows and made a move back above VWAP.
And when it broke above the high of the day at $39.97 and through the whole number at $40 (the rip), it became a buy.
- I pulled the trigger… but cautiously.
I let AMC trade on a pullback to $40, then jumped in at $40.15 as it headed back up.
But given this specific stock, the way it was trading, and the time of day, I wasn’t going to pile into this.
I decided to just dip my toe in with 100 shares — smaller than what I’d usually play with. I figure, if I start small and the trade works, I can scale in more from there.
- I managed my risk at the onset.
And on top of the relative safety of the small size, I also put a tight stop on the trade.
I bought at $40.15 and was out if it broke back below the whole number at $40.
That meant I was risking $0.15 on the trade, for a total of $15 (100 shares x $0.15 = $15).
AMC was either heading up, or it wasn’t.
And as you can see in this ugly chart… it wasn’t.
In fact, it took exactly 9 seconds to know I was wrong.
But guess what?
It only cost me $15.
Dip, Rip… and Die
Absolutely. If I was a stubborn jerk.
Because even though VWAP doesn’t lead me astray too often, I’ve been humbled by the market so many times in my decades of trading, that I’ve learned to take my ego out of it.
By getting out of a bad trade when you should with relatively minimal damage, a loss is a win… It’s actually a good trade, in my book.
If you define your trades, you are in control of your risk.
And if you trade your plans, win or lose, that’s a good trade.
But let’s say you took a trade and didn’t get out when you planned, but ended up making money anyway.
Is that a good trade? My answer is an emphatic NO!
It’s lucky, but it’s not good.
But Kenny, I made money… isn’t that good?
Not if you made it by ignoring your predetermined stops and deviating from your plan.
In trading, sticking to your plan is critical to long-term survival.
You break your rules once and end up a “winner,” chances are you’re gonna break them again… and you might not be so lucky next time.
That’s Trading 101.
Plan your trades, and trade your plans.
Alright VWAPians — let’s quit talking and get to DOING.
Join me LIVE at 9:30 a.m. ET for another great hour of LIVE VWAP trading.
It’s going to be a fun one as always.
Kenny “The Warlock” Glick
September 27 2021