VWAP Flash Cards: Reversal
Quick and Confident
Last weekend, we saw how the VWAP/AVWAP were great tools for playing a trend day. We even saw a trend day evolve into a tradeable counter-trend at the end of the lesson.
In this lesson, we’ll look at using the AVWAP for early morning reversals. Importantly, how to get the trade right soon after the open (or admit a wrong and switch position), setting up success for the remainder of the day.
Image 1. It takes more than luck.
Trading VWAP
I always anchor my primary VWAP to session open and maintain for the rest of the day.
Image 2. ES daily profiles
We’ll be looking at two days from the past week, Wednesday Feb 4, and Friday Feb 6.
As usual, we anchor our VWAP to the open!
Wednesday, February 4
Image 3. 500 tick chart with AVWAP
That’s the easy part. Remember, we’re not rushing into a trade. As you know, it’s extremely important to take a look at context, too - using the profile.
This should be done each day before market open.
Image 4. ES daily profiles
We open at the prior day LVN. The thesis is simply - support above indicated an appetite to test further targets, with a break of PDVAH critical early on. A fail of the LVN could see a traverse of prior day value area, or more.
In that sense, it’s the day’s pivot.
Image 5. AVWAP as support
We see the day’s open AVWAP supporting a few minutes into the session, with slightly higher lows and highs. But refer back to Image 4 above - buyers fail to test the PDVAH.
Recall our thesis.
Sellers got the message, too - and they come on strongly after 9h49EST. This is a possible setup for an open-reverse.
Here’s how we play that:
Image 6. Reverse card!
Note the prior low breaking is a key clue. With our thesis in motion, here’s a great place to set up our trade, using the same AVWAP!: