Don’t deviate from VWAP
Hello, VWAPians!
The Warlock – Kenny Glick – here.
Why do I feel like I’ve said that before?
Yesterday was eerily similar to Wednesday.
The market was gapped down on major economic data, then recovered to the upside.
In fact, my favorite stock, the QQQ Invesco Trust (QQQ), finished with a slight gain on the day, adding 0.36%.
That was after opening down BIG.
If only someone just mentioned this kind of market reaction to news…
If you paid attention to the most recent edition of this newsletter, you may have even profited on yesterday’s move.
I wanted to share something I noticed about yesterday’s QQQ chart with you that could help you in your VWAP trading journey.
If you can’t access Think or Swim, we also have a workaround for the free charting service TradingView.
But the chart above is from Think or Swim. You may recognize the blue line, or 1-minute VWAP, and the orange line, or multiday VWAP.
But what about those gray lines?
Those are standard deviations of VWAP, and they are included in my VWAP code from Solid.
While VWAP acts like a magnet, the standard deviation bands can almost be thought of as momentum indicators, which can tell you when a stock is overbought or oversold.
On my charts, there are 2 standard deviations, which can provide a wide range of support and resistance for prices.
For example, look at the white arrows on the chart above. Price action was below VWAP, and nearly each time the stock approached the lowest standard deviation, the QQQ share price recovered to the upside.
Conversely, look at the green arrows. The QQQ share price struggled to break out above the second standard deviation to the upside.
Remember, VWAP trading itself provides an opportunity to profit from mean reversion – because VWAP acts like a magnet.
You can think of standard deviations of VWAP as smaller, less powerful magnets. Price has a much easier time moving above and below these bands, and they are less significant overall than VWAP (of the multiday), but they shouldn’t be ignored.
Standard deviations of VWAP aren’t always as blatantly significant as they are on this chart, but keeping them in mind in conjunction with price action is just another way members of Warlock’s World can widen their trading arsenal.
New to VWAP?
Start your journey down the path of trading salvation with a headfirst dive into the VWAP bible.
Paddle Your Canoo
Yesterday in Warlock’s World, my main man 8-Baller continued to do a fantastic job filling in for me.
8-Baller showed off his skills and then some – highlighting trading opportunities on Taiwan Semiconductor (TSM) and Gold futures (/GC)…
But the real money maker was a revisit on a stock from Wednesday…Canoo (GOEV).
GOEV was gapped up Wednesday on heavy trading volume and sold off until late in the trading session.
But on Thursday, 8-Baller put the stock to work.
One of 8-Baller’s favorite phrases is “Trading is anticipation.”
Once GOEV was able to reclaim the high of the day, the share price continued to rise, topping out at $5 per share – a whole number, which are significant.
That math is easy – that’s a $1 per share profit on a cheap stock. While risking $0.05.
Say you have a small account – a trade of one hundred shares could have brought in a cool $100 in profit.
Now suppose your account is a little bit larger – a trade of 500 shares could have netted you $500 in profit.
Even 1,000 shares wouldn’t have been breaking the bank for most brokerage accounts – and would have brought in a cool $1,000 in profit.
And that’s one trade.
But Kenny, you’re putting $4,000 at risk with that trade!
Uh oh. You didn’t remember 8-Baller’s other favorite phrase: PAY ATTENTION.
The risk was defined ahead of time at $0.05. That means with 1,000 shares, you’re risking $200. Let me break that down for you:
To potentially make TWENTY TIMES your risk.
Risk a nickel and make a dollar? That’s exactly what trading in Warlock’s World is all about.
Join us. And while everybody else can keep worrying about inflation and economic data, we’ll continue to hunt trades like GOEV with huge return potential.
Click here to join my Warlock’s World.
I’ll see you soon!
Comments
July 15 2022
Leave a Reply