VWAP Flash Cards: Trend
Stop the Hysterics.
There are few things more painful than fighting a trend - on any timeframe. This is where traders often fail, especially newbies. Seasoned traders, also.
Jessee Livermore is a great example.
Trend trading was his original edge - ‘trade the trend and sit tight’. But later in life he broke his rules, anticipating tops and bottoms (never do that! Let others do that for you). Trading on emotions, he famously averaged down to destruction.
Image 1. All it takes sometimes (most times)
So let’s focus on a great tool for trend days. Last week gave us two of those - with Thursday giving two trends in one session in a massive reversal off a ‘really dumb number’ - 6900.
Can AVWAP work to identify that, too? Sure can! That will be the treat for the second half (gated) of the lesson. But as always, I share some great stuff up front to support everyone’s growth and hopefully cut down on the frequency of painful lessons.
Trading VWAP
I always anchor my primary VWAP to session open and maintain for the rest of the day.
Monday, January 26
Image 2. 500 tick chart with AVWAP
Done. There is an early trade for those who want to take it, with risk appropriately set below the open - about 4 points. I wouldn’t give it too much more with less than 5 minutes into the session, unless I had strong conviction.
I’m not chasing.
Image 3. 500 tick chart with AVWAP
Once again, I can bid the retest of the AVWAP now that we are a few minutes into the B period on strong momentum.
This time I have another clear reference. Stop below the prior low - another comfy 4 points!
Image 4. Friday expanded profile, continued
The later in the cycle, the more the risk. Too many folks getting comfortable means too many late joiners - and as such, weak hands. Those will be the first to exit, causing a cascade once the trend sours.
Nothing is forever.
My stop here increases to 5-6 points, and my R:R will suffer as a result. As long as I have good trade management (I have many lessons on this), I can afford the risk, squeezing out some more gains.
But ideally I have already benefitted from this trade. Remember, controlled risk + clear references = constraints and framework. And that means better psychology.
That’s what separates the great traders from the rest.