VWAP Basics – What is VWAP?
WHAT IS VWAP?
You can click here to watch the entire clip, but I’m also going to break it all down for you step by step right here.
VWAP stands for Volume Weighted Average Price.
The blue line on my charts is the 1-minute VWAP, and it’s THE ONLY LINE THAT MATTERS IN THE STOCK MARKET.
I’ll explain why that is in just a moment.
I also employ a multi-day VWAP that requires a custom ThinkorSwim code – exclusively available to all Warlock’s World members – but the 1-minute VWAP is the basis for almost ALL of my trading; you don’t need the multiday to make money trading VWAP.
If you have ThinkorSwim, you can add the 1-minute VWAP on your charts by going to Studies/All Studies/V/VWAP and looking at a 1-minute chart.
Many trading platforms outside of ThinkorSwim also have the 1-minute VWAP available; call your broker or your platform’s customer service line if you’re unsure, and make sure you COMPLAIN if they don’t.
WHY IS VWAP IMPORTANT?
The entire market is RIGGED and revolves around institutional algorithms.
The blue line – the 1-minute VWAP – is telling you where institutional money is going into the market.
Take Geovax Labs (GOVX), for example.
You can see on the chart below that once GOVX shares broke back above the 1-minute VWAP, volume increased and moved even higher.
GOVX was on the move recently
That’s no coincidence.
When a stock makes a definitive move back above the 1-minute VWAP, that tells us that BIG, institutional money is coming into the stock, and that’s what gives us the volume.
We’re not looking to move markets or find the next hidden gem, we’re using VWAP to ride the wave of institutional money flow causing spikes in price action.
When a stock moves back below the 1-minute VWAP, it tells us the big boys are hitting the exits, and that there could be further downside follow through in price.
Take this chart below from SIGA Technologies (SIGA) for example.
You can see on the chart once SIGA broke the 1-minute VWAP to the downside, volume increased and price action accelerated.
SIGA broke VWAP to the downside recently
Pretty neat, right?
But Kenny, how do I use this in my every day trading?
I wasn’t finished, Blanche.
HOW DO I TRADE VWAP?
Now that we’ve established the importance of VWAP, if I say “This stock is breaking back over VWAP” during one of my Warlock’s World sessions, you might think, “Institutional money is getting into this stock – maybe I should buy it.”
On the flipside, stocks making decisive moves back BELOW the 1-minute VWAP often present opportunities on the bearish side – which is when I tend to short shares.
Of course, VWAP trading is MUCH more nuanced than that, but that’s’ the gist of it. To best educate yourself on the ins and outs, it’s important to join my Warlock’s World every day.
If you haven’t already, be sure to grab your VWAP 101 Training Guide right here.
Kenny “The Warlock” Glick