VWAP Indicator Day Trading Strategy, Part 1

VWAP Indicator Day Trading Strategy, Part 1
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    look my friend by popular demand I'm doing a two-part series on the VWAP indicator strategy for day trading.
    VWAP stands for volume weighted average price it is a
    benchmark they can be very useful in your trading and what it essentially
    means is that it is adding up the dollars traded for every transaction
    multiplied by the number of shares trade it so it's incorporating volume you can
    use this in place of moving averages it's commonly used in place of moving
    averages and it the way that I look at it is kind of a fair value so what we
    have here on this particular chart the way that I have it lined up here this
    black line that's actually the volume weighted average price so by
    incorporating volume into it you can see that it's not only an average of price
    but again the energy the volume the weight of the price action and so I
    consider it kind of a neutral zone that is the neutral zone that's why I use the
    term the fair value although that's not how it's technically defined but to me
    it kind of makes sense fair value so when the market comes back to that line
    as it does here then that is kind of a in neutral zone
    whoops do it that way and kind of equivalent in other words it's not the
    same but it has the similar concept me of a pivot point or the central pivot if
    you like to use flirter pivots where there would be a balancing point and
    anything below that would be bearish anything above it would be bullish so
    the same thing here you could consider it in that same sort of contact that
    same sort of concept anything above it bullish anything below it bearish now
    let me bring up the indicator and show you how I've got it set up on my charts
    I know everybody likes to see that as well you should
    so here's how I've got it set up and depending on the charting platform you
    use there may be different different parameters here and so forth that you
    use but anyway I'll just show you mine so this is a ninja trader and bla bla
    okay so now as you'll notice I have ninja trader a lot of people don't use
    this for some reason I'm actually very surprised by this but a lot of people
    don't use the standard deviations above and below it they just use the line
    itself and I'll pull this up so here actually you can see the definition be
    what's the ratio of the value traded to total volume traded over a particular
    time horizon usually one-day measure of the average price of a stock traded at
    over the trading horizon okay so there's your little definition for you and so
    I've got three standard deviations here 1 2 and 3 are the multipliers but
    whatever colors you want in there and so forth okay we'll talk about this more in
    part 2 actually we'll talk about it a little bit in part 1 as well so in part
    1 here yeah I'm probably one we're going to talk mostly about trend trading so as
    you can see it's going to form these Alliance because I've got the 3 standard
    deviations the black line that is our actual volume weighted average price so
    again that is kind of our line in the sand if you will between a bull and bear
    market using this indicator so cool we go we started out above it by the way
    notice that they always start out the lines always start out together and that
    just makes sense because it's gonna be recalculated at the beginning of every
    day so it's really important by the way and the technical issue that you have it
    loaded before the market starts every day have your charts live not quite as
    accurate typically if you put it on later like if you come in in the
    afternoon and then you load it up best to have it loaded up right at the open
    ready to go because it does calculate on every bar and it's a cumulative
    calculation so at the beginning all your lines are going to be very close
    together actually start hold together and then the you're
    going to get this expansion typically at the very beginning so one way of trading
    this if you're looking for a trend trade is to look for the view have to be going
    up and price to be above it and retrace to it hold above and then continue up
    now what I really like to see for me the best case scenario is it for it to stay
    in this standard deviation range here just like it does right now so to me
    that is a nothing but net trend so to say to use a basketball analogy and
    because why it's not coming back to the volume weighted average price if it does
    it's coming back to neutral all of a sudden the markets come back to a
    neutral sentiment and if you want a continuous trend well you don't want it
    to come back to neutral then you've kind of lost your your
    trending now some people still do that and use it as a support level or
    resistance for bearish markets and that's okay if you use other things
    along with it candlestick patterns some indicators you like or whatever it can
    be used that way as well I'm just saying that for me in my house when we're
    looking for a sustainable trend I feel much more confident if it stays between
    these standard deviations up here does do that all the time oh heck no why
    because well not every day does the market go into a sustainable trend so
    that's like your textbook best example and I like to start out there just so
    you have that in mind but let's look at real life okay so a lot of trading days
    are gonna be like this but this is valuable to know as well because now
    what do we have so now we have a flat V wealth line alright let's just flap and
    so what and then also we have price bars above it below it above below above
    below so that again indicates a non trending market that the markets just
    hovering around the same value weighted average price and therefore we don't
    have a training market well guess what that's good to know as well would I
    trade that no I probably wouldn't trade it but I would see that and say oh hey
    one of the most valuable things I'm trading is to know when
    not to trade I just went to trade also you should learn when not to trade to
    stay out of choppy markets that's extremely valuable and so well this is
    Amazon five minute chart so then what does go look at a different market find
    one that is trending so again whether you want to do scanning or just you have
    your basket of stocks that you're looking at this would be a great example
    of one to say oh okay you know what nothing happened in here I think that
    maybe I'll just go look at a different market and find one that is trending
    very valuable now here's one more example and what I wanted to demonstrate
    on this it's kind of a combination of the two things that we looked at before
    so here out of the day we come out of the open and we go down and we retrace
    now here look we retrace not all the way back to the B whap line and this
    actually is even better because it's showing that we haven't gone back to
    neutral we're staying in bearish territory and so this is a place where
    we could short use a good timing indicator or candlestick patterns
    whatever in conjunction with this you never use this or any other one tool or
    indication alone but this is a great way to kind of map the market to know where
    we are as far as bullish bearish sentiment so it's held this now look at
    this okay close down a little bit very cool so so far looking good if we went
    short there but then what happens well then we just go sideways for quite a
    while and that is quite a while I mean golly that's almost what two hours
    pretty close to two hours and so this is where things can get very disconcerting
    where you can get very uncomfortable because you think oh the markets just
    going sideways and of course you're right it is going sideways however we
    were still in bearish territory still in bearish territory therefore if you have
    taken that short I might want to take some profits like some profits in there
    or a gesture risk profile and do your money management technique but the fact
    is that if we're gonna break out we're looking to Bri
    down and things have not reversed in other words just because the markets
    going sideways we are not in a bullish market here we were still in a bearish
    market so if it fits the rest of your trading style and you want to hang in
    with some shares there and then go and see if you can get more out of it
    then this definitely worked out well for you we got a beautiful candlestick
    pattern and then BOOM in the afternoon the last two hours of the trading day
    the thing just tanks for the last hour and a half or so and so this can help
    you to stay patient and let your winners run fulfilling the the famous saying cut
    your losses short and let your winners run another way of not getting freaked
    out during neutral parts of market action and still having a I hate to use
    the word bias but an established sentiment based on the logic and a
    rule-based method so we're gonna have part 2 after this / - will be very
    different / - we're not going to talk about trend trading today was about
    trend trading the view app / - is well I'm gonna leave that up to a mystery
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