I warn a lot against holding day trades overnight, and this is always good advice…
But there are profit opportunities in certain overnight trades… as long as you know what to look for.
Yesterday, I talked about one of these during my Pre-Market Prep session.
I called it on Wednesday and the stock gapped up big overnight.
Anyone who bought it at the entry price I recommended and held it to the next day’s high could have made over 200%*.
So, what element of this trade told me we had a good chance of winning big?
One of my favorite technical indicators ever, Volume Weighted Average Price (VWAP), of course!
Table of Contents
First, a Quick VWAP Refresher
VWAP, which stands for Volume Weighted Average Price, is the most widely used indicator for day trading and swing trading.
Its value lies in its ability to tell us if buyers or sellers are in control.
For example, if a stock is trading above VWAP, that’s a bullish sign.
And below, bearish.
Pretty simple…
This is why all the major traders, algos, hedge funds, and big institutions use VWAP.
And it becomes a self-fulfilling prophecy—when enough traders follow VWAP, it influences the stock’s behavior.
How to Use VWAP for Overnight Holds
Let’s say you’re swing trading Stock XYZ.
Maybe you bought the breakout over $24.80 (the previous day’s high). You’re risking down to $24, giving it about 80 cents of risk.
Now, here’s where VWAP comes in…
In the afternoon, if the stock holds above its VWAP into the close, keep watching it. That’s a bullish sentiment.
And if it’s trading below VWAP, the sellers are in control.
Let’s take it further…
If XYZ closes strong and is still above VWAP, that’s a good signal to hold it overnight. Note, use the after-hours close if it applies.
Now if it closes at a level still below VWAP, it’s time to throw in the towel, exit the trade, and move on.
Many traders go wrong in focusing only on the candles.
VWAP gives you a more accurate picture of what’s behind the stock’s price movement. It can help you stay in strong trades, despite a few red candles.
A Real World Example
TEN Holdings Inc. (NASDAQ: XHLD) was the overnight hold I spotted late on Wednesday…Yes, if you like to watch the markets into the after-hours close, this can be a great time to find these trades.
As usual, VWAP was my friend!
XHLD started moving above VWAP that evening, a bullish sign, around $0.63 per share. This is where I advised entry.
The stock fell below VWAP momentarily but closed out strong and above VWAP again, so the overnight hold was on…
The next day, XHLD ran to a high of $2.03 for a gain of 222%*!
XHLD 2-Day, 5-Minute Candles; SteadyTrade
Spotting all these VWAP overnight holds might seem like a lot of work…
And you’re not wrong…it can be.
Fortunately, my brand new algorithmic tool does much of the heavy lifting for you. It’s similar to Oracle but optimized for smoother-moving overnight trades.
The tool is new, but the win rate has been spectacular so far…
And my one year of backtesting showed similar results.
I love this system, and you will too.
To see exactly how it works, tune into my FREE live webinar Today, March 20th, at Noon ET.
My Final Thoughts…
Why does VWAP work so well?
- VWAP reflects what big traders are doing.
- It helps prevent emotional decisions.
- It keeps you in strong stocks and out of weak ones.
And once you’re in the trade, follow it until the close and then…
If it’s above VWAP, let it run overnight.
And if it’s below VWAP? Cut it and move on.
Simple. No second-guessing. No emotions. Just discipline.
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Have a great day, everyone. See you back here tomorrow.
Tim Bohen
Lead Trainer, StocksToTrade