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VWAP (Volume Weighted Average Price)
The Volume Weighted Average Price (VWAP) is the cumulative average price of a stock traded during one day. The calculation of the VWAP begins the moment the market opens, builds throughout the day, and concludes at the close of the session. For equities, users can choose whether to use pre/post market hours in the calculation. The daily VWAP resets at the start of each new day. Because price is weighted by volume, not time, the VWAP is the true dollar average for the time period studied. Each share traded (by retail and institutional traders, long and short) receives equal weight in the calculation. The VWAP is more responsive to volume trends than price action because of its volume weighting feature. Accordingly, as volume levels change (pace of trade) throughout the day, heavier volume periods have more impact on the movement of the VWAP while lighter volume periods have less impact on the movement of the VWAP. The VWAP is a straightforward study. There are no settings, adjustments, or offsets to complicate its measurement.

AVWAP (Anchored Volume Weighted Average Price)
The AVWAP is the same as the VWAP except that the starting point (the anchor) for the volume weighted average price calculation is set by the user at a specific meaningful point; that is, it is not simply the start of the trading day.
When we start the VWAP calculation at a point other than the start of the current day, it becomes “anchored” to that first point and we cal it can “AVWAP”.

The AVWAP broadcasts the message of the market, that is whether sellers or buyers are driving the then-current price trend, more clearly than any other technical tool I have studied in my 30+ year obsession with the stock market.

The way the AVWAP combines price, time, and volume into one easy-to-understand indicator gives us a blended view of whether it is the buyers or sellers who are in control. This valuable information allows us to better understand market structure so we can:
∙ Identify low-risk, high-probability market and individual stock opportunities.
∙ Time our entries into the market and individual stocks more accurately.
∙ Stand aside through periods of uncertainty.
∙ Cut our losers early based on objective recognition of price action.
∙ Hold our winners longer.
∙ Exit our winners more efficiently.
⇒In short, AVWAP is a tool which can help any timeframe participant make better market timing decisions and achieve greater market profitability.

Volume is the best representation of how committed participants are to a market at any point. A healthy market move will see volume expand in the direction of the primary trend, peak near turning points, and diminish on the counter trend moves.
High-volume can signal times of stronger confidence in a move, while low-volume times are often a healthy pause as the market digests a price move and traders consider their next trades.

One of the first goals of any market participant should be to find a combination of:
∙an approach or strategy
∙a timeframe, which together fits your personality

Often, the level I believe the stock can move to is an AVWAP from a prior high, which becomes a “level of interest” where resistance may be found.

📈The cardinal rule: risk management is always job #1.

📈To trade in the direction of the trend is mathematically correct.

💭”Get the fundamentals down and the level of everything you do will rise.” — Michael Jordan

The AWAP is a technical tool that allows us to determine who is in control (buyers or sellers) from any point. It shows us how well they maintain control, or if there are signs of a trend slowdown or potential reversal.

📈A trend, once established is more likely to continue than reverse.

To achieve the most accurate VWAP value, you want to use the shortest timeframe available without affecting the ability to see it clearly on the chart.
⇒The shortest tie increments will provide the most accurate VWAP approximation.

Active traders should start the day with a 1-minute timeframe for the first part of the day, and then use longer timeframes as the data gets “scrunched up” and it becomes difficult to differentiate the candles.
⇒A shorter timeframe slightly increases accuracy at new anchor points, but the longer timeframes allow more clarity of the larger picture.

♟️When considering where to set your anchor, the most common choices are to anchor from the: open (O), high (H), low (L), or close (C). The most accurate AVWAP measurement will include as much data as possible, so the OHLC/4 is best, as it is the most inclusive of the data available. This simply means the weighting of the AVWAP will not be overly influenced by the open, high, low or close, it treats them all equally.

With AVWAP, volume is the most important factor in the calculation.

My preference is to not use any type of volatility band displayed over AVWAP.

A VWMA is a periodic(time-based) moving average where more weight is given to bars with heavy volume and less emphasis on price points where less volume is traded.

📈Recognize that markets are fractal.

Short-term trading as an opportunity to shorten your learning curve even if you do not participate in that timeframe.
Short-term traders should also learn how shorter-term trends fit together in a longer-term market move. This knowledge can help you hold your winners longer.

Smart money doesn’t mean institutional money or a room full of PhDs. It only means the group who controls the trend.

You can be the smart money if you understand market structure and use the best tools properly.

Momentum trading is about “buying high and selling higher.” Of course, we know it doesn’t mean that you should chase stocks that are moving higher, but rather to buy them as their momentum begins so then we can manage risk properly.

If I am holding a stock, I do like to take profits when there are large moves in the pre-market.

💭”Never turn a trade into an investment or an investment into a trade.” — Barry Ritholtz

If you do not use AVWAP in your analysis, you cannot see important levels of Support and Resistance that others are using successfully to make more money.
The simplest and most effective use of the AVWAP is to find “hidden” levels of Support and Resistance.
You can’t see them if you don’t place the AVWAP on the chart. Once we identify Support and Resistance with the AVWAP, then we can use those levels as the basis of our trade plan.
When we buy or sell a stock as it emerges from the battlegrounds of Support and Resistance levels, we can also control risk easily and objectively by placing stops outside of the consolidation range after our entry into a new position.

📈You should think of Support as a demand area.

📈It is best to not consider a potential level of Support or Resistance to be an automatic place to do business, but rather an area where you should look for evidence that confirms or refutes your thesis.

♟️Examine the level of interest on a shorter-term timeframe and look for a price area where you expect something will happen, typically a reversal or breakout. This is the cornerstone of the concept of multiple timeframe analysis.
⇒Gather evidence, observe objectively, and patiently wait for the trade opportunity to reveal itself in a low-risk way before you commit your hard-earned money to a risk position.

My preference is to use that area as a place to drill down the analysis to a shorter timeframe to look for actual evidence that the buyers are gaining control.
⇒Don’t buy the dip, buy strength after the dip.

The focus should always be risk management to assure any loss taken is small.

📈When the stock is in a trend day it is likely to finish near the high or low of the day.

The VWAP and AVWAP can reveal important levels of buyer and seller interest which do not show with any other analysis method.

♟️When the slope of the VWAP is lower, it is best to stay away from the long side.

Once we identify a key level of Support or Resistance, we wait for price confirmation(prices begin to move higher) on a shorter timeframe before putting hard earned money to risk.
⇒ ♟️Only enter on a reaction from a key level whether that be a breakout, bounce, pullback, etc.

Be aware that the more obvious a level seems to be, the more likely it is that other traders will also know that level and they will use it as an area for a stop loss or to exit a portion of their position. This can make the obvious level a place where failed moves are likely, so be careful with stops in these areas. ⇒♟️Entering on these levels can be profitable liquidity grab strategies.

📈True market understanding comes from anticipation of how other participants will act in different scenarios. When you look at a chart, try to imagine how you would feel, and possibly act, if you were long, short, or in cash.

📈If Support breaks, who will buy, sell, or cover? How about when Resistance is broken? Understand the psychology of why Support and Resistance develop, and you will have a significant advantage over most participants who simply look at patterns.

What we really want to know is who is more aggressive and who is in control, the buyers or sellers? ⇒The direction and slope of the AVWAP allows us to answer that question easily and accurately.

The direction and rate of change of the AVWAP is often more important than simply being above or below it.
⇒♟️The steeper the slope of AVWAP, the more aggressive the trend and higher the likelihood the AVWAP will act as Support on pullbacks and the stock will experience a bounce.

As the slope of the AVWAP flattens out, it shows that there is greater market acceptance of the value and the market likely needs more time(and perhaps a price shakeout) before the original trend resumes. ⇒♟️ Avoid trading in a consolidation and range zone.

When a flat AVWAP gets tested more frequently, it is more likely to flip from Support to Resistance and Resistance to Support. The goal is to use that information to identify low risk, high probability trades. ⇒♟️ Stalk the price action for reversal or breakout.

📈Earlier in the day, or during whatever the timeframe being studied, the slope of the VWAP is typically at its more extreme level because the number of data periods being averaged is lower. As the day progresses, and each transaction has less impact on the average, it is natural to see the slope of the VWAP become less pronounced.

♟️When the direction of the daily VWAP is higher, be careful not to get bearish on the first cross of price below.

General note: All moving averages should be used as a reference point to compare price trends. They should not be considered as automatic levels to do business when they are touched, but as a reason to observe the price action on a shorter-term timeframe, where we formulate a plan. We generally give the benefit of doubt to buyers when the 50-DMA trend is higher, and to sellers when the slope is lower.

Takeaways on rising AVWAP ↑
∙When the direction of the AVWAP is trending higher, we should have a long bias and avoid new short positions.
• The increase in price shows on the chart as a bullish trend above the rising AVWAP. Consider these stocks innocent until proven guilty during the timeframe that this occurs.
• Buyers should seek opportunities to buy after pullbacks toward the AVWAP, but first wait for evidence of actual support. If there is, then prices will likely rise and we have a logical place for our stop.
• The first one or two touches of an important AVWAP are more likely to experience a strong bounce. This tendency occurs as sidelined buyers, who thought they missed the move, rush in to purchase shares.
• As the life of the trend stretches out, the bounces occur with less enthusiasm, which raises our level of caution and our defensive posture. When a bounce is less vigorous it’s because buyers are a less motivated source of demand; thus, the trend more vulnerable to failure.
• As with any level of Support, the more times and more frequently Support gets tested without a bounce away from the AVWAP, the more likely it is to fail in the near-term.

If you have a long position that you want to get out of, rallies up to the AVWAP are often an excellent point to exit before the stock heads back.
If you want to enter a short position, you can start new positions as prices fall away from the declining AVWAP, with a stop above the most recent and relevant lower-high for your timeframe.

It is common for large institutions to set multi-week AVWAP programs at the start of an event. Those programs become more aggressive as prices approach the AVWAP from the start of the event and provide overwhelming supply which forms resistance.

Takeaways on declining AVWAP ↓
• When the direction of the AVWAP is lower, we should have a bias toward short positions and avoid new long positions.
• The decrease in prices appears on the chart as a bearish trend below the declining AVWAP. Consider these stocks guilty until proven innocent on the timeframe this occurs.
• Short sellers should seek opportunities to sell after the price rallies up to the AVWAP, finds Resistance and then falls.
• The first one or two touches of an important AVWAP are more likely to experience a quick selloff which makes them great candidates for a short sale.
• As the life of the trend stretches out, the declines occur with less vigor, which raises our level of caution and our defensive posture towards new short sales.
• As with any level of Resistance, the more times and more frequently Resistance gets tested without a decline in price, the more likely it is to fail in the near term.

When you observe a flat AVWAP with prices crossing above and below it, my advice is to avoid the stock on that timeframe. This action is neutral and there is no edge in being long or short.

Trend traders should avoid these stocks until there is greater clarity of who has control.

Some of the most common trade mistakes occur from reactive FOMO decisions.

• The concepts of Support and Resistance apply to all timeframes.
• AVWAPs can reveal order in the market that traditional technical analysis tools cannot.
• The simplest and most effective use of the AVWAP is to find “hidden” levels of Support and Resistance.
• Unlike the more common Support and Resistance levels which are seen as horizontal price consolidations, the Support and Resistance levels of an AVWAP are dynamic. They adjust with each trade.
• AVWAP allows us to quantify who has control from any point, buyers or sellers.
• The slope of the AVWAP easily identifies directional momentum. When it rises, buyers are in control from the start of the anchor. Conversely, if the slope falls, sellers are in control from the start of the anchor.
• Support and Resistance areas have a self-reinforcing role, which makes the psychology of the participants’ motivations important to understand.
• We only know Support and Resistance levels in hindsight. They are “levels of interest” until confirmed by subsequent price action.
• Don’t buy the dip, buy strength after the dip.

Traders should use the AVWAP’s ability to identify levels of Support or Resistance to their advantage.
One way to do that is to wait for a test of an AVWAP level and to purchase the stock on the first touch of the AVWAP and hope that it holds.
The other option is to observe the action around the AVWAP and treat it as a “level of interest” on a shorter timeframe.

Any trade setup is more likely to be successful when trends are aligned with longer timeframes of the stock and the trend of the overall market.

AVWAP levels are not always an automatic place to do business and you must decide through trial and error if you prefer to buy the touch or wait for the stock to bounce from the AVWAP before you make a purchase.

♟️Purchasing the stock after it tests the AVWAP and bounces away from it is the lower-risk entry.

The AVWAP allows us to find exactly where and when the sellers are overwhelmed and buyers have regained control.

♟️Wait patiently for the signal(a general guideline would be 3~5 bars for the timeframe you are on) to enter so you have a level to trade against. We want to enter AFTER buyers or sellers have regained control. Buy strength after the dip and short weakness after the rip.

I prefer to start a short position as the stock drops away from the AVWAP(indicated by the green dots), where the downtrend momentum is confirmed.

The more times Support or Resistance is tested, the more likely it is to fail. This is a simple, but important concept.

📈The longer a consolidation zone(period of relative stability in price) has taken time to develop, the greater the move away form it will be as more energy has built up.

When a stock makes a large move and there are no levels of traditional support or resistance to be found on the chart(except for the AVWAP), it is a good idea to look at prior important highs and lows as anchor points.

📈It is uncanny how often you will see a stock halt at an AVWAP from a prior high or low. Knowledge of these levels in advance allow us to approximate a “target” for the price move.

• AVWAP Support often becomes Resistance once it is broken.
• AVWAP Resistance often becomes Support once it is broken.
• Key AVWAP levels can indicate where the stock may lose momentum.
• Do not confuse simple with ineffective. Too many people want a complicated approach, but “simplicity is the market’s greatest disguise.”
• The more times AVWAP Support or Resistance is tested, the more likely it is to fail.

The “art of trading” is what separates the successful traders from the analysts.
Learn the science of technical analysis and raise it to an art form as you implement it with your trades.

Strive to be an objective analyst of the price-to-AVWAP relationship on multiple timeframes and you will be an even better trader.

The price levels around high volume events can be useful levels to set your AVWAP anchor. Unusually high volume(loosely defined as 1.5x normal volume) price event can “shock the market” and “reset” the psychology of the crowd.

Tests of the AVWAP from a high-volume event will often become a battleground between buyers and sellers, and the emerging trend can set the tone for the stock for days, weeks, and even months.
Large price moves, accompanied by a surge in volume are excellent anchor points because they are where innumerable “price memories” live.
From these points, the AVWAP helps us observe the real time changes in market values caused by the constant push and pull between bulls and bears.

It is good practice to know when potential market moving catalysts(such as earnings report dates) are due in the market.

It is important to know that a price movement after a fundamental announcement is often counterintuitive. The market is a discounting mechanism and “good news”, which was expected, is often welcomed as a profit taking opportunity by those who had the correct position ahead of the event.

The releases of individual corporate earnings reports are consistently useful anchor points because they are when investors and traders will refine their beliefs and trading strategies about the companies whose stock they are holding, or are considering as trade candidates.

The earnings season begins one or two weeks after the last month of each quarter(March, June, September, and December) and continues for approximately six to eight weeks.

Earnings reports are some of the best places to begin an AVWAP.

Other news-related events that can become good anchor points include Federal Reserve meetings and speeches, FDA announcements, activist events around annual meetings, merger and acquisition news and rumors, patent awards, secondary stock offerings, strategic alliances, lawsuits and product recalls, court decisions, new contracts, and supplier issues.

Federal Reserve announcements change the psychology of the market and are important AVWAP points.

Highs where prices reversed lower are some of the best anchor points for the AVWAP, as the following tests of that AVWAP often prove to reveal the Resistance level.

When a stock breaks downward from a previous uptrend, an anchor to the most recent high is one of the best places to set an anchor.

A third category of places to which to anchor the VWAP is time based.

Swing traders should keep an AVWAP that begins at the start of each week on their charts. You will see how often it comes into play as support or resistance as the week progresses.

When you start an AVWAP at the beginning of the month, it might not show it’s value until a week or two later.

♟️I always keep an AVWAP from the start of the month on my charts.

To avoid the initial volatility, I generally use the low of the first 5 minutes of a new day as the new stop if the previous stop was traded through on a gap lower.

♟️Always be aware of the slope of the AVWAP as prices approach and test it. The steeper the angle of the AVWAP, the greater the evidence that buyers are more active than sellers and the more likely it is that the AVWAP provides support. Thus, it is more likely that stock will bounce higher after an AVWAP touch.

What is often surprising is the AVWAP from the previous year will still take on significance as a level of support or resistance well into the next year.

The Pinch “Squeeze”
When we have identified key swing high and key swing low levels and the stock coils between those two AVWAPs, they pinch together.
The “pinch” is a compression of energy.
When the stock exits the pinch, it is often an excellent trade in the break’s direction.

♟️Gaps reveal a strong shift in sentiment and become excellent anchor points to measure subsequent action from.

♟️Where the AVWAP is repeatedly tested with very little bounce in the price is a clue that the stock may be weak and you should raise stops to just below the low to ensure you book profits before a larger selloff comes.

Because the market has “memory”, we want to know the levels that are most likely to have the highest emotional attachment for other traders and then measure how price action develops around those levels.

• Some of the most important levels to anchor the AVWAP to include: Fundamental (news events) Price-based / technical events News events such as; earnings reports, Federal Reserve announcements, jobs reports, and other institutional publications or press releases Time-based events
• AVWAP techniques build on each other and strategies can be formed based upon patterns or situations such as the “AVWAP Handoff” and “AVWAP Pinch.”
• Time-based AVWAP anchors include traditional daily VWAP as well as week-to-date, month-to-date, quarter-to-date, and year-to-date.
• Price gaps occur from a sudden shift in perception of value of the stock and those levels become important anchor points.

♟️Look for high probability trades when the shorter-term trend comes into alignment with the longer timeframe trend. The emergence of an AVWAP Pinch is often the start of that alignment.

♟️The ideal time to buy a stock is as it breaks free of a tight range. The early entry to an emergent trend gives us two advantages.

♟️A strong move is often an excellent opportunity to sell part of the stock and then raise the stop on the balance to the higher-low.

Wait for price to come out of the Pinch before you take action to buy or sell.

An AVWAP Pinch is most likely to break in the direction of the primary trend. The tighter the pinch, the more likely it is to experience a powerful break. When a stock breaks free of a tight pinch, we can keep close stops and trade more shares with the same R-multiple at risk.

• An AVWAP Pinch is a tightening of the price range.
• The break of the Pinch often leads to excellent trend trades.
• The action point of an AVWAP Pinch is when it breaks free of it’s consolidation.
• The ideal time to buy a stock is as it breaks free of a tight range. The early entry to an emergent trend gives us two advantages. One, we become involved just as the trend begins, so we have the greatest profit potential. Two, if the breakout cannot hold, we can place our stop close by.
• It is more important to understand the psychology of how a Pinch is formed than it is to simply recognize pattern formations.
• Not all Pinches will be resolved in the direction of the primary trend, which is why we wait for price to confirm the break before we get involved.
• AVWAP Pinches are formed and are actionable on all timeframes.

Primary trends rarely move in a smooth line. They slow down and speed up at various points before an eventual reversal. This is why you need to have multiple anchor points on a chart.
When a trend accelerates from the original anchor point, in either direction, it is useful to create a new AVWAP to help measure the renewed momentum.
This gives us the ability to better define and manage risk for existing positions, as well as for new entries.
We anchor a new AVWAP when a trend begins to accelerate after the original AVWAP was touched (or nearly touched). This is our “Handoff point,” a term I coined. A Handoff helps us to visualize and take advantage of the changes in the rate of momentum in a primary trend.
We leave the original or preceding AVWAP on the chart for future reference because the stock will often find Support (in uptrends) or Resistance (in downtrends) at or near that original Handoff point.

Our goal is to enter an existing trend at low-risk, high-probability points. This is an important strategy that helps us avoid FOMO purchases and take unnecessary risk by entering with renewed momentum.

Handoffs show a renewed commitment of buyers, which makes them important levels.

The point of first contact with the AVWAP is a point of interest, not necessarily a safe trigger point to place a trade.

The best purchase option occurs when the stock moves away from the AVWAP touch as new price momentum develops. My preference is to buy if the stock shows renewed momentum. This will allow me to purchase with a price trend in my favor from the start, and with the bonus of a logical place to set the stop.

At times we need to remove an anchor if a significant price move did not develop and the stock turned sideways. This helps keep your chart uncluttered.

Once you have more experience with the anchoring process, this will become more intuitive.

♟️Remember, we look to anchor at a logical point, such as a lower-high(on a downtrend) or a higher-low(on an uptrend).

Only set an anchor once you realize that the stock reached an important level.
This means we will always recognize the Handoff after the move is underway.

Once you learn to recognize one AVWAP strategy on a regular basis, you will begin to notice that other strategies will show up on the chart.
If you miss the original trade, there are often new purchase points after an AVWAP Handoff.
When this happens, you will see alternative entries at Handoff points.

KEY TAKEAWAYS
• It is normal for the rate of change in a trend to slow down and speed up.
• We set new anchor points from the levels buyers and sellers become more aggressive.
• Multiple Handoffs look like “layers” as the point of control changes with renewed momentum.
• AVWAP Handoffs can be used to trade more accurately on all timeframes.
• A Handoff level can often become the anchor point of a new Pinch in a trend.

♟️A couple of simple adjustments to the general Pullback and Breakout trade strategies will make these strategies much more profitable by adding to the AVWAP analysis.

One of the basic foundations of technical analysis is that a trend, once established, is more likely to continue than reverse.

Not all dips end up being a simple pullback. They can represent trend failure, which is why we wait to buy strength after the dip.

Don’t waste your time and money buying stocks in downtrends, no matter how low the price is relative to recent history. Don’t let FOMO rule your decisions. Wait for buyers and reestablish control before you participate in the trend.

♟️A buy above a flat to rising AVWAP gives us certainty that buyers are in control.

Buy strength after the dip.
We should view a price pullback to a level of interest as a potential opportunity on the chart, not a place to buy the stock.

It is safer to short AFTER the peak and the stock breaks below the AVWAP of those rallies.

It is wise for traders to look for stocks that are near breakout levels and then monitor those stocks on shorter timeframes for clues that they might be close to their own respective momentum moves. It is quite satisfying, and profitable, to buy a stock right at the start of a new trend and hold it for large gains as the trend intact. This is the goal of trend trades.

Breakout. Always remember to answer these two questions:

If it has used a lot of energy to get to the point of Breakout, it will be more difficult to keep risk to a minimum.

The best approach is to set stops based on the definition of trend.
When we buy a stock as it breaks past a near-term Resistance level (1) and the stock is in alignment with the larger timeframe trend, we want to place our stop below “the most recent and relevant higher-low.”
If it breaks that low (that is, the price drops below that low), the emergent trend has failed because the definition of the uptrend (higher-highs and higher-lows) no longer exists. Why would you want to continue to hold that stock?

The ability to hold a winning trade is largely a function of where you enter the stock. Are you in a position of strength or weakness from the start? Success is often simply the difference between a well-planned and executed trade at a strong (analytically supported) entry point, and a weak (emotionally determined) entry point.
⇒That really is the difference between a professionally executed trade versus an amateurish entry.

The markets discount the past and anticipate what is to come.
Large stockholders who accumulate stock at lower prices often sell a portion of their stock on the breakout if the stock experienced a run-up prior to the break higher.

In a downtrend, short sellers will cover a portion of their bearish bets when the stock breaks to a new low when the stock already experienced a large move lower in the days prior to the breakdown.

Be careful not to chase breakouts; make the smarter entry when price crosses the key AVWAP so you can be in ahead of the crowd and with less risk.
When you are involved in the stock before the crowd, it is a good idea to cash out a portion of your position as the breakout occurs. We want to trim a portion of the trade on strength and trail our stop with or in the direction of trend(raise it up under the new higher-lows).

If a stock had a strong move prior to a breakout, it is less likely it will continue.

TAKEAWAYS
•When we “buy the dip” we are in an immediate position of weakness because we are not sure if the buyers will quickly regain control. Wait for the upward momentum on the shorter timeframe before making a purchase. This puts you in an initial position of strength.
• Buy strength after the dip.
• There is no technical tool better than AVWAP to identify the transition of power from buyers to sellers and sellers to buyers.
• Avoid the mentality that you are buying a bargain when the stock is in a downtrend, stocks in downtrends are “guilty until proven innocent.”
• If we “short the rip” we never know if the momentum will continue higher and cause large losses. It is better to wait for the stock to continue lower on the shorter timeframe before we consider a short sale.
• Always remember to answer these two questions: where it has come from, and where does it have the potential to go?
• The ability to hold a winning trade is largely a function of where you enter the stock. Are you in a position of strength or weakness from the start?
• Not all breakouts and breakdowns are the same. Consider how the stock got to the trigger(where has it come from?) before you decide to get involved.
• The lowest risk entries occur when the short term trend first comes into alignment with the longer term trend. This is true for long and short trades on all timeframes.

When the stock closes near the high of the day, it may be short term extended(used up too much buy power in the short term) and in need of a slight pullback(profit taking) the next morning.

If the stock opens lower than the previous day’s close, we want to be ready to purchase the stock under these conditions:

A good way to confirm that buyers have regained control on day two is if the day two VWAP is now rising. This may happen as soon as the first three to five minutes of the new day, so you need to pay close attention.
If you purchase the stock when both days’ VWAPs are rising, the momentum is in your favor.

The day two entry technique will get you in the stock ahead of momentum buyers who like to buy a “red to green” move.

♟️It is best to buy second day strength after the initial pullback.

There are a couple of ways we could have avoided the frustration of an early loss.
The first technique is to wait for the first five minutes of the day before you enter the trade.

The second, and less risky entry technique, is to wait for 5~10 minutes from the open to buy near before you make a purchase. Wait for a new high to buy.

📈When a stock experiences a sharp move lower on day one and closes near the low of that day, there will likely be sellers in the following day or days.

How it unfolds:

For those who resisted FOMO buys and kept their focus on price action, the cross back below those two AVWAPs marked an excellent short sale opportunity.

There are 3 different short sale entry options.

When a stock makes a strong move on day one it can be tempting to get involved in the trade at the start of trading the next morning. Rather than jump in with no strategy and hope the trend will continue, we use the day two AVWAP in conjunction with the daily VWAP to identify the lowest risk entry for trend continuation.

• The previous (or several days) AVWAP is an important reference level for stocks that experienced a momentum move.
• The more accurate the entry, regardless of the planned hold time, the tighter you can set your stop, and the more time you have with momentum in your favor.
• This strategy will help you catch more winners that have broken out (or down) at the beginning of a multi-day momentum campaign.
• Whether you use this technique for a day trade, multi-day, or longer hold, it can help you enter a trend at the lowest-risk point possible.
• Day two (and three) AVWAP entries provide an advantage over net price change traders (red-to-green buyers and green-to-red sellers).
• Because we enter the trade at the start of new momentum we also reduce the risk of tying up our capital in a stock as we wait for it to move. Also, this approach gives us greater profit potential.

Common Gaps
•Common gaps do not lead to longer-term trend shifts.
•Common gaps typically take no longer than a few days to fill.
•Common gaps offer excellent short term trade opportunities, especially in a stock where there is an existing Stage 2 Uptrend or Stage 4 Downtrend.
•For stocks stuck in Stage 1 Accumulation or Stage 3 Distribution, there is typically no edge to trade a common gap.

Chase the Gap or wait for AVWAP?
When a stock gap is higher, we are told there are three choices:

Breakaway Gaps
•A breakaway gap occurs when a stock breaks free of a longer term consolidation(Stage 1, Accumulation or 3, Distribution), usually with a large increase in volume. The breakaway gap acts as an ignition to momentum that can last months to years.
•When breakaway gaps occur with a news catalyst such as an earnings surprise, it is more likely the stock will continue to trend in the gap’s direction than it is to fail. If the news that motivated the gap is unexpected and meaningful, it is more likely to lead to a sustained trend.

Stops will never get you out at the high, but they will get you out when the supply/demand equation from the original catalyst changes.
It is unusual for breakaway gaps to be filled because they represent a powerful shock to the supply/demand equation.

We anchor the AVWAP from the first candle of the gap.

Continuation Gap
•A continuation gap is also known as a running or measuring gap.
We find these gaps in stocks where there is an established trend that likely began with a breakaway gap. Because the trend already exists, these gaps represent a continuation, and often an acceleration, of the trend.
•It is common for earnings reports to be the catalyst for these gaps.
•Like the breakaway gap, the continuation gap is not always filled. It will frequently leave behind those who wait for the gap to be filled.
•The continuation gap offers some of the best opportunities to participate the best opportunities to participate in a trend if you weren’t involved with the earlier move.

Because these gaps typically occur somewhere near the midpoint of a major trend cycle, continuation gaps are also known as “measuring gaps”. They are found somewhere near the middle of a full trend cycle.

Exhaustion Gaps
•Exhaustion gaps occur near the end of a major trend.
•Because ADRs and commodity ETFs gap nearly every day, it is difficult to manage risk. My preference is to not trade them.

When a stock in an uptrend gaps lower, they can be great buy candidates. Stay focused on the trades in relation to the daily VWAP as well as the important AVWAPs from longer timeframe.

To compensate for the risk of the unknown, my preference is to use several stops. The first one is the tightest (meaning smallest dollar increment) because it protects the initial capital. How tight you set the stop depends on your personal risk tolerances. I set the second stop after the stock has moved in my favor. I set the second stop tightly enough that I can lock in some gains if the stock reverses, which lowers the overall risk. I set the third stop to give the stock a little more “room to breathe.” This (hopefully) prevents getting stopped out before it turns into a larger winner.

• Gaps occur on a regular basis; without a strategy we are prone to FOMO trades.
• No trade method will get you into 100% of the winners. That should not be your goal. The goal is to find the low-risk, high-probability trades and a large part of that comes from the confidence in your approach. As it is said, “it is better to be on the sidelines in cash, wishing you were in than it is to be in the market wishing you were out.”
• Stops will never get you out at the high, but they will get you out when the supply/demand equation from the original catalyst changes.
• Day two entry techniques allow us to participate in a stock when we might have normally missed the day one gap opportunity.
• Be aware of extended hours trading in gap stocks.
• Unusual circumstances such as dividends, ETFs, and futures create special gap situations.

The higher the SIR(short interest ratio) is, the more difficult it is to exit a short position and the greater the upward impact will be on price. I consider an SIR of 5 or greater to be significant enough to think a short squeeze could develop in the stock.

Short sellers with large positions against a stock are typically sophisticated speculators who have done extensive research on their targeted company. They are often correct, and they make large profits as the stock declines.

Some general points to help you determine the stocks that may become structural squeeze candidates:

Stocks with double sources of demand(longs and shorts) and tight supply(especially if the stock is at or near an all-time high) can lead to excellent upside trade opportunities.

• Short squeezes are motivated by short sellers who fear unlimited losses that can arise from being in a losing position.
• The higher the SIR is, the more difficult it is to exit a short position and the greater the upward impact will be on price. I consider an SIR of 5 or greater to be significant enough to think a short squeeze could develop in the stock.
• Knee-jerk short squeezes are typically short lived.
• Structural short squeezes can lead to longer-term uptrends.
• We want to identify structural short squeeze candidates because they can lead to dramatic upside moves where trend traders can profit.

Initial Public Offerings are a unique opportunity to study price action from the inception of a stock as a publicly traded company. Because there is a defined starting point to anchor an AVWAP from, an IPO offers the purest look at supply and demand from a fixed starting point shared by all participants.

The AVWAP has been my primary analysis tool for IPOs since I first began to experiment with it.

Of course, it is always by using a multiple timeframe analysis where we find the most value.

It will surprise you how often buyers or sellers congregate near the IPO AVWAP, even years after the stocks come public.
Institutions will often buy on pullbacks to the IPO AVWAP.

• IPOs are obvious anchor points.
• From the first minute of trades to several years later, the IPO AVWAP proves to be a valuable reference point.
• Buyers and sellers will make decisions that lead to the formation of Support and Resistance at the IPO AVWAP.
• As with other strategies, the IPO AVWAP is not the only valuable anchor point on the stock.
• Use the knowledge from previous chapters to find the other anchor points that are suitable for your timeframe and risk tolerance.
• If you want to trade a stock on its IPO day you need to use a VWAP.
• On the first day of an IPO, anchor an AVWAP at the second minute of trading for objective analysis without the noise of the first minute opening print trade.

When armed with a winning strategy, you have the confidence to have an attitude of “I loaned $ back to the market and I will get it back with interest.”
Do not get stuck in hindsight analysis.

Remember the only thing that really matters in the market is price action. Only price pays!

Stage 1 Accumulation refers to the period when a stock has no trend, it trades sideways. It occurs after a drop in prices. It is the process of buyers gaining control from sellers. We know it is in Stage 1 only after the buyers have regained control of the stock and it enters a Stage 2 Uptrend. Until it is in uptrend, it is a trend-less market that should be avoided by trend traders.

Stage 2 Markup (Uptrend) is the bullish phase for stocks or markets. The markup stage is an uptrend, as defined by higher-highs and higher-lows. This is the time to be long. Stocks in uptrends are considered to be “innocent until proven guilty.”

Stage 3 Distribution. After a prolonged advance, sellers will start to overwhelm the buyers. This causes the stock or market to turn sideways. We know that it is Stage 3 only after a decline has begun. Until the decline begins, it is just a neutral period that should be avoided by trend traders.

Stage 4 Decline (Downtrend) is the bearish phase of a stock’s life. This is when to be on the lookout for short sale opportunities. The Decline stage is defined by lower-lows and lower-highs. Stocks in downtrends are considered “guilty until proven innocent.”

To summarize, we want to:
• Avoid sideways neutral periods, Stage 1 Accumulation and Stage 3 Distribution.
• Go long in markets where the trend is higher, Stage 2 Markup/Uptrend.
• Be short or avoid markets where the trend is lower, Stage 4 Decline/Downtrend.

Choose your timeframe
📈One of the most important aspects to your success in the markets is to identify and stick to a timeframe that is best suited to your personality.

📈I am not the first person to observe that the number of trades one makes will typically decrease over the number of years that you are in the markets.

Timeframe Considerations
• Are you a fast thinker or slower thinker?
• Can you quickly observe and objectively make decisions or do you get panicked when you must act on shorter timeframes?
• Are you a slower, methodical participant who must plot and plan each detail?
• What suits your personality best?
• What is your capital base? People with small accounts may feel they have to be more active while larger account holders may be more patient.
• How much time do you have to commit to the markets?
We need to use even-sized bars/candles for accurate analysis. A common mistake made in technical analysis is to use timeframes where there are an uneven number of periods each day.

To obtain equal measurement of price and volume data in our analysis, the number of minutes per candle used must all be divisible into 390.

📈Only the most skilled traders should attempt to take advantage of these countertrend moves.

📈We want to get involved in the stock as the intermediate-term trend(days to weeks) comes “into alignment” with the longer, more powerful trend.

📈Make it a habit to look at stocks on multiple timeframes to gain a better comprehension of how the timeframes flow together.

📈Defer to the longer and more powerful trend if in doubt.

Longer timeframes offer greater opportunity for profit, while shorter-term timeframes offer the fastest(more seductive) opportunity to turn a quick profit.
📈If you cannot find clarity on a longer timeframe, interpret it as the market telling you to avoid the stock for now.

📈A quick and easy reference point to determine the primary trend is the slope of the 50-day moving average(“DMA”).

All moving averages should be used as a reference point to compare price trends. They should not be considered as automatic levels to do business when they are touched, but rather as a reason to observe the price action on a shorter-term timeframe, where we formulate a plan.

Combine Timeframes for Longs
Stage 1 Accumulation. This is where we plan our trades. We observe, analyze, and ANTICIPATE the point where buyers will take control. This is the time to assess our price objectives and stop levels to determine our plan of action for when the stock gives us a reason to get involved. This is when we want to answer; where has the stock come from and where it has the potential to go? Then we can determine if there is a sufficient risk/reward ratio setting up to justify the purchase of a new long trade. If the 5-DMA is in decline, or beginning to flatten out, that is a clue to leave our activities to analysis and not take action at this stage.

Stage 2 Markup (Uptrend). As the stock makes a short-term higher-high, which is in alignment with the longer-term uptrend, we want to buy the stock. This is when we PARTICIPATE in what appears to be a continuation of the uptrend on the longer-term timeframe. Stage 2 is also where we manage our winners by raising the stop to just under successive higher-lows as the stock rallies. This is the fun part. The 5-DMA should be flat or starting to advance at this stage. We generally want to buy the stock as it makes it’s first higher-high on this timeframe.

Stage 3 Distribution. This is when the stock shows signs of fatigue and may precede a price pullback, or it may need a “correction through time.” This is a good point to EXIT the position, or at least sell some to lock in partial profits, and tighten the stop on the balance, rather than continue to expose our capital to risk. The angle of ascent of the 5-DMA will slow down or begin to turn sideways at this point.

Stage 4 Decline (Downtrend). Once the definition of a trend (higher-highs and higher-lows) no longer exists on the timeframe when we entered the stock, there is no reason for a swing trader to continue to hold. When the primary trend is higher, it is likely that the breakdown of price into an intermediate-term downtrend is the start of a pullback, not a longer-term reversal. This means that the odds do not favor profitable short sales. It is better to AVOID these stocks and look for better setups elsewhere.

Combine Timeframes for Shorts
Stage 1 Accumulation. This is where we exit our short sale trades. This is when the stock shows signs of fatigue. It may precede a price bounce, or it may need a “correction through time.” This is a good point to EXIT the position or at least buy some back to lock in partial profits and tighten the stop on the balance, rather than continue to expose our capital to risk. The angle of descent of the 5-DMA will slow down or begin to turn sideways at this time.

Stage 2 Markup (Uptrend). Once the definition of a trend (lower-highs and lower-lows) no longer exists on the timeframe we entered the stock, there is no reason for a swing trader to continue to be short. When the primary trend is lower, it is likely that the breakout of price into an intermediate term uptrend is the beginning of a bounce, not a longer-term reversal. This means the odds do not favor profitable short sales. It is better to AVOID these stocks and look for better setups where trends are coming into alignment on the downside.

Stage 3 Distribution. This is when the stock shows signs of fatigue and may precede a price decline. In the short-term stage 3, we observe, analyze, and ANTICIPATE the point where sellers will take control. This is the time to assess our price objectives and stop levels to determine our plan of action when the stock gives us a reason to get involved. This is when we want to be sure we have answered; where has the stock come from and where it has the potential to go? We can then determine if there is sufficient risk/reward ratio setting up to justify a short sale trade.

Stage 4 Decline (Downtrend). As the stock makes a short-term lower-low, which is in alignment with the longer-term down-trend, we want to sell the stock short. This is when we PARTICIPATE in what appears to be a continuation of the downtrend on the longer-term timeframe. Stage 4 is also where we manage our winners by lowering the stop just above successive lower highs as the stock declines. This is the fun part.
The 5-DMA should be flat or starting to decline at the start of this stage and we generally want to short the stock as it makes its first lower-low on this timeframe.

When the primary trend on the daily timeframe is lower, we avoid longs and consider short sales.

Steps for Multiple Timeframe Analysis

There is a tendency for traders to feel as if they must be continually engaged in an active position, but when there are mixed trend signals across various timeframes, it is best to have a more cautious stance until trends align and show lower-risk entries. Cash is a position.

Timeframe Transition
Common wisdom says to stick to the timeframe you intended at the onset of your trade, and for good reason. All too often, short-term traders will find a reason to justify hanging onto an unprofitable trade longer than originally planned. Similarly, someone who intends to hold a stock for the long-term should fight the urge to take a quick profit. The only time you should allow a short-term trade to be transitioned to a longer timeframe is if the stock is in a profitable position and you can still manage risk for the trade.
⇒The decision to hold longer than expected should be made from a position of strength, not weakness.

Bulls and bears make money and pigs get slaughtered.

💭”Simplicity is the ultimate sophistication.” — Leonardo da Vinci

Anchor Point
The start of a new AVWAP/VWAP. Common anchor points can be from; swing highs and lows, new time periods(days, week, month, year, etc), earnings reports, gaps, large volume levels, etc. VWAP anchor is always and only at the start of the day.

Types of Gaps:
Breakaway Gap
A breakaway gap occurs when a stock breaks free of a longer-term consolidation(Stage 1 or 3), usually with a large increase in volume.
Continuation Gap
A continuation gap is also known as a running or measuring gap. We find these gaps in stocks where there is an established trend that likely began with a breakaway gap. Because the trend already exists, these gaps represent a continuation, and often an acceleration, of the trend. Exhaustion Gap
Exhaustion gaps occur near the end of a major trend. The stock will reverse the direction of the gap and close at the extreme lower-end.