AVWAP Course: Simple Trades
June 6, S&P500 (ES)
Each week I review key moments from recent price action in the indices. These instances will be analyzed using three methods: the tape / DOM; footprint; and candle chart. Synthesizing the three allows an understanding greater than the sum of its parts, leading to a complete understanding of the auction process. There are many great resources out there, although I am not aware of any that provide such a comprehensive study guide.
Image 1. Balancing a Trump 2.0 market
Simple Trades Using AVWAPs
A trader asked me last week to publish a piece using an anchored VWAP for trade entries. Friday is a good example as it is one of the more challenging day types for traders - the balanced session.
Again, feel free to ‘bird call’ your requests in the comments or in direct messages, my line is always open!
For AVWAP fundamentals, please check out an older piece on VWAPs. In the lesson below we’ll look at three very simple (and profitable) trades using a VWAP anchored to the open. These area especially useful in the ‘Trump 2.0” market on balance days - the increased volatility lends itself to higher R:R.
Finally, I’ll wrap up with another example of integrating multiple AVWAPs. This is especially useful to see balance shifting from buyer to seller control, or vice versa, to support your intraday thesis.
Trade 1: Jumping on an Open Drive
As I mentioned before, in a volatile and often trending tape, I prefer to keep at least one VWAP anchored to the open. Sometimes this is all you need, especially on a balance day.
This first trade below required quick reflexes - an open drive that typically sees a directional move after the first five minutes. But let’s walk through the concepts, which apply on any timeframe.
Image 2. ES 500 tick chart, June 6
Note the mini two-way auction highlighted in the white box. I draw these on every time frame to identify areas of agreement on price. I am interested to trade only a break and confirmation (with a retest of the auction), with a stop below the mid or lows of the auction area.
The rebid on the break is noted by the white arrows. I try not to overthink too much, preferring statistics and the concept to back up the trade. I typically market into the offer once I see interest at the retest.
Furthermore, the 6000 level was a convenient psychological ‘pivot’ - with sustained trade or initiation above favoring the long side.
Now note the next area of auctioning in the second white box, evident in price rapidly trading between 6005 and 6008. A break and retest of the top of auction is the perfect place to join, with a stop below 6005. If you missed the first trade (taking place within minutes), the second one gave you another opportunity, with confirmation of a strong push on the first 5m bar - a classic trade setup many of you will recognize.
Keep it simple!
Trade 2: Playing for Balance
Image 3. ES 500 tick chart, June 6
That doesn’t mean the trade continues indefinitely to the all time highs. Indeed, price traded to another psychological level 6025 (to the tick) before turning around in the first half hour. Buyer weakness, despite the open-drive, is evident by such an exacting hit on 6025 before buying dried up.
This is more evocative of a) short-covering; and b) late buyers. So now we revise our thesis from ‘open-drive’ to a more likely balance day.
Looking at the chart above, note the auction highlighted in the white box. Don’t now overlook the VWAP anchored to the open - this coincides with a retest of a break of auction below, lending to a clean short opportunity as the weak hands (late buyers) exit their trades.
However there are a couple of advance clues I want to cover for this trade below. They gave a clear ‘heads-up’ that buyers were struggling; a fail of auction would be time to load up with high conviction.