As a day trader, I constantly use technical indicators to find and plan the timing of potential trades.
In fact, during my Premarket Prep every morning, I review all of my trade setups before the market opens.
I go live every day at 8:30 am Eastern to share my ideas for the day and how to execute them. I then take questions from my subscribers…all so they can be extra ready for the trading day ahead.
Find out how you can get in on the action before the market opens.
There are several price patterns and themes that come up during these sessions as we look for trades…low float stocks, Dip and Rips, Red to Green Candles, short squeezes…
But one I want to talk about today is Volume-Weighted Average Price (VWAP) and how day traders should be using it to trade more successfully.
What Exactly Is VWAP?
Basically, Volume Weighted Average Price (VWAP) is a technical indicator that shows you where most of the trading volume is concentrated within a specific timeframe.
It’s pretty simple…
If the price is above the VWAP, the stock is trading at a premium. If it’s below, the stock is trading at a discount.
You can use VWAP to help determine whether a stock’s price is appropriate.
Here’s One Way I Use It.
Imagine you see a company spike premarket. It looks tempting to get in…
But you need to watch and wait for confirmation that what you’re seeing is truly going to hold. Later in the day, the same stock breaks its earlier high, but not only that, it holds VWAP. This is where you want to get in.
Set your stop loss at the current VWAP level since a break below VWAP is a good indication that the stock is going to continue failing. And remember, that VWAP level is dynamic so make sure you keep up with it.
Take a look at Alzamend Neuro Inc. (NASDAQ: ALZN) on Monday. VWAP worked perfectly in this situation.
ALZN 2-Day, 5-Minute Candles Chart; SteadyTrade
By the way, Oracle caught this one too. It gave us the green entry signal at $7.35 and the stock topped out at $15.06 for a gain of 104.9%*.
If you’re not familiar with our proprietary trading system, you should be!
It scans the market every morning for price patterns and trends. Then, it applies its algorithm to produce a list of 20 stocks with bullish green signals and bearish red signals, along with the appropriate entry price for a long or short trade.
We get winners from Oracle every single day. Make it a part of your trading arsenal.
Why Every Day Trader Should Be Using VWAP
Here’s why day traders like me use VWAP all the time.
It’s so simple: The price is either above or below the VWAP. That’s it to get a clear indication of market direction.
Trend Identification: It’s a quick way to determine if a stock is cheap or expensive on any given day.
It makes it easy to set entry and exit points. It helps traders make informed decisions about when to get into a trade and when to get out.
Tips for Using VWAP
VWAP is straightforward, but don’t be fooled by its simplicity—using it effectively requires some finesse. Here are a few key tips:
Stick to Short-Term Charts: VWAP is most accurate during shorter timeframes, like 1-minute or 5-minute charts. Looking at longer-term charts, you might find that VWAP lags behind, causing you to miss crucial moves.
Be Smart About Setting Your Stop-Losses: VWAP can shift throughout the day. So, don’t just place your stop-loss on the other side of the VWAP line and forget it. You can use other reference points like recent swing highs or lows, or key levels from the morning session.
And Now to the Part About Risk…
VWAP is reliable, but like any indicator, it’s not foolproof. It’s most effective when used alongside other indicators, such as the Moving Average Convergence Divergence (MACD), the Relative Strength Index (RSI), and moving averages, to confirm signals.
All day traders, especially those overlaying their charts with VWAP and the other indicators mentioned above, need a robust trading platform to execute their strategies successfully.
You also want a system that will allow you to paper trade before you risk your own capital.
The one I use every day is StocksToTrade.
It has all the technical indicators, intraday data, dynamic charts, and stock screening capabilities that day traders like me look for in a platform.
Grab your 14-day StocksToTrade trial today — it’s only $7!
Have a great day, everyone. See you back here tomorrow.
Tim Bohen
Lead Trainer, StocksToTrade
P.S.
If you love the excitement of day trading, you might consider adding options trading to your playbook…
My colleague and seasoned options trader, Jeff Zaniniri, has developed an AI-powered algorithm called GAMMA that exploits a market inefficiency, or glitch, within certain options contracts.
These glitches trigger alerts in his system, which Jeff shares with his GAMMA subscribers every Monday, Wednesday, and Friday.
Learn about the glitch that can make you a master options trader!