There are times when the opposite is actually true. The high volume of trades shown on the VWAP trading indicator is happening because the smart money is looking to get out of their current position. As a general rule, if the price is currently above the daily average, it’s a good time to sell. When you see the price below the daily average, it could be a good time to buy. However, as with all of the indicators in day trading, there are exceptions to the rule.

Suppose you find a stock whose price is currently below the daily average. As was just mentioned, the general consensus would tell you that it’s a good time to buy. If there’s not enough trading volume at that point in the day, though, the price won’t go up. On a good day, that could leave you in a position where the stock price doesn’t really go anywhere for the rest of the day. That may allow you to sell it off with a small loss or even earn a few cents.

There’s also a chance, though, that the low volume ultimately drives the price down. That’s why just looking at the average price of a stock on the VWAP trading indicator can be a very near-sighted way to trade. Volume is just as important to the equation as the price. Another important element to keep in mind when using a VWAP is the time frame. Most professional traders will tell you to keep the time frame anywhere between 5 and 15 minutes. What that’s going to do is give you a clearer picture of the current price and volume within a stock. 

Another mistake people make is trying to look at daily time frames to anticipate where the price will go. Remember that the VWAP trading indicator is an average, but a lot can happen within a day. If you’re looking at the daily time frame, you can see that the current price is below the average and the volume of trades is decent. Conventional wisdom, as was mentioned, would indicate it’s a great time to buy. The problem is, the average is higher because the price started out the day on a high and then dropped, and the volume is decent because everyone was getting out! Now, there’s no guarantee that the price will return to a previous high point, at least not within the next few hours or even days. 

The VWAP can be one of the go-to tools for day traders. First, it’s very important to know how to adjust it properly. The key is to read every detail the indicator provides. Once you learn how to do that, you’ll have unlocked one of the most powerful day-trading tools! 

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The post What is the VWAP Trading Indicator and How to Use it as a Day Trader? appeared first on Bulls on Wall Street.

This video lesson I will show you how I use the VWAP in the current market environment, and how you can implement the indicator in your trading next week:

What is VWAP?

VWAP stands for Volume-Weighted-Average-Price. It tells you a very important piece of information: Whether buyers of the stock that day are in the green or in the red.

As momentum-based day traders, we consider it the “line in the sand” for intraday support and resistance. Using the combination of volume and price range, VWAP is an excellent technical trading indicator that can work for trading multiple trading strategies. Whether you look to long pullbacks or short pops, the VWAP can come in handy to do both!

Understanding How Stock’s Trend with VWAP

When using our VWAP trading strategy, it is important to understand how stock’s trend throughout the trading day. As we discussed in the video above, when stocks go on strong trends and get extended from the VWAP and intraday moving averages, they will at some point pullback before the continuing trend.

Waiting for this pullback takes patience. Most traders chase the stock when it is going up, and then sell for a loss because they bought when it was extended. The stock almost always pulls back to its VWAP at some point during the trading day. WAIT FOR THE PULLBACK. Don’t chase. This gives you better Reward vs Risk on your trades and helps you time your entries and exits.

A Common Mistake Traders Make

One of the most common mistakes traders make when using VWAP is that they assume a price break under VWAP immediately means it’s a sell, or a break above is a long. A break over or under VWAP is not a trade signal by itself.

What you need to pay attention to is how price RESPONDS to the VWAP area. What I tell my students is to wait for a candle to form and hold before taking a position. Don’t blindly buy or short when the price gets near it expecting it to reverse. If it was that easy everyone would be driving lambos.

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$IRBT was an earnings play that gapped up big on Wednesday in response to better than expected quarterly earnings results. The move in the stock Wednesday morning after the market opened  didn’t really offer a great setup to get a good risk vs reward entry point. It happens. Not all stocks will set up and give us an entry point early in the move. That doesn’t mean we can’t trade the stock. After waiting for it to flag we can use our flag strategy combined with the VWAP indicator to get a pullback entry and got us a nice 5% gain on the trade in just several minutes. See the full trade recap in the video below:

Not All Stocks Will Set Up At The Open

Sometimes stocks will just go straight up at the open, without really giving a pullback or anything to give an entry. This is essentially what IRBT did at the open. You must have the discipline to not chase or get FOMO when a stock you are watching makes a big move without you. All stocks pullback eventually, so there is no reason to get emotional and chase a stock if it doesn’t pullback at the open. You need to have an array of setups that will give you low risk, high reward entries after the market open for these scenarios.  This is why we use the VWAP to play pullbacks on stocks that have just made a big move.

Using the VWAP To Play Pullbacks

The VWAP stands for “Volume-Weighted Price Average”. It essentially shows you the average price that everyone has entered the stock during that trading day. It is a great indicator to use after the market opens to play pullbacks, and give you an idea of a stock’s trend. A momentum stock trading above VWAP, in general, is considered to be bullish. When it is trading under the VWAP, it is considered to be bearish.

It will often act as intraday resistance and support as well. When we traded IRBT this week we waited for it to pullback to the VWAP to get a low risk entry to capture some of the momentum in IRBT. It’s crucial when you use VWAP to play pullbacks that you wait for the stock to show signs of holding the VWAP area.

Wait For the Stock To Show Signs Of Holding A Dip

You never want to be blindly buy stocks dipping towards the VWAP without waiting to see how they react to that level. You want to see the stock hold the level for a few candles, to show some sign that it will act as support. Nothing in trading works 100% of the time, and you significantly increase the probability of a VWAP pullback working if you wait to see how the stock reacts to the level first. If the stock just dumps right through the VWAP like it wasn’t there, there is no capital loss on your part because you are waiting for the stock to hold that level before putting your capital at risk.    

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The post Simple Day Trading Strategy For Earnings Plays – $IRBT appeared first on Bulls on Wall Street.

1. What is the best indicator and how do you use it?

Keep in mind that there are absolutely no holy grail indicators. Rather, indicators are used to confirm price patterns and assign probability to what we’re looking at via price setups.

My favorite intraday indicator is the VWAP, the volume weighted moving average. The VWAP represents the average price of all buyers and sellers in the stock that can be used as a line in the sand. For instance, when the price breaks below the VWAP, it’s a great place to short.

But it’s important to keep in mind that ultimately price is what pays. Our focus should be on price action, price patterns, and trend. Indicators are only aligned over price to weigh the probability of the trade.

2. What should you do if you can’t get shares to short?

When you want to short a particular stock but the broker doesn’t have the shares available, you can’t take the trade. If you have a really good broker, they might be able to cover 99% of the stocks out there. You can also check with good brokers to see if they have it. If they don’t have the shares they will label it as ‘HTB’ or Hard to Borrow. But for a certain price, these brokers will find these shares at clearing firms and get them for you. Here is a how to guide to shorting stocks.

3. Do you use hot keys when you trade?

Hotkeys can be confusing and time consuming. I have buttons laid out that says 100 shares, 200 shares, 500 shares, and 1000 shares on them. These buttons are neatly set up so that I can trade them even faster than hot keys.

Here is a Screenshot of my trading screen.

4. How do you determine which stocks are the hot stocks?

The buzz! The hot stocks of the day can usually be checked premarket. I check for earnings, PR, and stocks that are gapping. Then I investigate what’s happening. What’s the news? How does the chart look? The characteristics that make a hot stock are chart breakout, a PR breakout after basing, high relative volume, and low float. The hot stocks will really move when you have not only the right technicals, but the right catalyst as well.

5. Do you recommend swing trading or day trading for new traders?

I recommend swing trading for all traders, mainly because its easier. You’re analysis is similar to day trading, but you have more time to think. For swing trades, you have 4-5 days to think about the entry, the stop, and the first target. The same rules apply for day trades, but you have only 5 seconds to make those decisions.

Also, day trading is like any other job. You have to work every day to provide consistent income. But you also need to save for retirement, such as swing trading low cost ETFs and other index funds. Compounding interesting is a powerful concept, but it doesn’t exist in day trading. In long term swing trading you can add shares and build into your position. That way your return on these investments will also compound.

Check out the video to get the full details of this interview.

If you have any questions you can ask them in the comments on our YouTube channel.

If you really want to learn every aspect of my trading system, the Bulls Bootcamp is the way to go. It’s an intensive 60 day course to teach you exactly how I trade and why. To learn more or signup, email me at kunal@bullsonwallstreet.com today!

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