VWAP strategies for profits in Stock Markets!!
hello hello hello my dear friends this is your friend vivek bajaj co-founder of stock edge and inland markets friends yet another to face global and yet another super excited video i'm going to touch a very very important topic today multi-time frame analysis and with me i have the master of multi-time frame analysis you're going to enjoy this video this learning please watch it till the end i mean it takes an effort to reach out to the right people and get them on board for your learning this is going to be very exciting learning we are going to discuss multi-time frame we are going to discuss a very important indicator which the expert is using so hold on this is great and if you have joined me for the first time face to face is a series which i run it has more than 45 million views and if you have not become part of face to face do subscribe to the channel elon markets well without spending too much time on this let me welcome dear friend brian shanahan hi brian hi vivek thanks for having me on here good morning from india and good evening from u.s did i spell your name correctly uh brian sanon shannon shannon okay thank you so much for correcting me there so it's great to connect with you and uh you know i know uh you're very active on twitter and we got connected to twitter that's the power of twitter you know you can reach to anyone at any uh you know within any objective and uh i know about you so let me just introduce uh people um to you uh sorry let me just introduce you to people see i'm already nervous but i'll try to cool keep my cool and calm uh so let me introduce a brian shannon is an american author and technical analyst he published his book called technical analysis using multi-time frame in 2008. he's an avid educator he's a market participant he's a trader and you know he's the one of the best indie traders in the business that's what people call him so you know this is a short introduction from my side but obviously we want to hear more from you brian how did you start this journey what has been your background please tell us more about you yeah sure i i first got my interest in the uh markets um uh through my dad he he would watch uh wall street week here in the us which i'm not sure if you guys are familiar with um and when i was a teen and you know 12 13 years old i would sit there on friday nights and watch this uh market show with them and i started picking up little things about the market and asking questions and then finally did a trade uh you know my first equities trade i think was 15 i had put up 500. my dad loaned me 4500 basically 10 to 1 margin um and we bought a thousand shares of a five dollar stock that stock doubled in the next three months and needless to say i was hooked on it i thought you know why do people get jobs why would anyone work when you can make money like this especially at that age so that was uh you know i graduated college in 1991 from there i went to uh lehman brothers in boston and uh worked as a stock broker for a little bit moved to denver colorado uh in 91 as well 92 actually and i've been here since and you know during that time i was a broker for a retail firm for a little while i like to say i've got the opportunity to practice with other people's money and you know i did make mistakes with other people's money but it wasn't you know big mistakes or anything like that but i i definitely learned a respect for risk and you know after about a year or so of being a broker at that firm i branched out you know basically graduated from a a salesman which a stock broker is basically uh to a trader i you know found a firm that gave me leverage and i used uh you know every last penny that i had saved and you know went to work for for this firm trading it was uh i think i was 23 years old and man i if i if i had to do it again the way i did it back then today i don't think i would meaning that you know i was young and i could afford to take risks i had nothing to lose basically um so you know i i would i did have a strong respect for risk so i was immediately profitable and profitable each of the months that i was with that uh proprietary trading firm out of new york i opened an office for them in denver and then opened my own day trading office so this was you know 1993-94 and then kind of started with another firm where i headed up their pri prop desk some educational content i still i you know i still have traded pretty much every single day since then so you know really my passion for the market comes from my day-to-day activity in the markets so here i am today you know as you said i wrote my book in 2008 i'm working on another one based on you know the anchored volume weighted average price and uh i run a site called alpha trends the best way to find my information where i put out you know my public stuff is on uh twitter where my handle is uh alpha trend so that kind of gets us up to speed here yeah yeah absolutely yeah so you know brian um so you said that you graduated in 1991 so how old you are i'm 54 years old oh my goodness okay let me ask you this question do you think fitness has anything to do with success in stock market i do yeah and i you know i i try to stay healthy and active and uh um you know i think i think you you know you hear the phrase healthy body you know healthy mind healthy body and you know they feed each other and you know if when you you maintain physical fitness you sleep well your brain is rested you can engage in you know a pretty stressful activity and where you always have to be thinking especially on the time frames that i'm engaged on i i'm a swing trader primarily so i i ideally like to hold stocks you know a couple days to a couple weeks but you know it's up to the market it's not up to me how long i i hold if i decide how to long to hold it's probably going to be a loser you know in other words if i'm not listening to the market especially now with all the volatility that we're seeing in the markets um that you know i've got to listen to the message of the market and right now you know today being what's the 24th of january we had an extremely volatile market in the u.s market and i did nothing but day trades today simply because that was the opportunity there i didn't i don't necessarily want to be a day trader but you know i i'm here in front of the machine this is what i do and that's where the opportunity is again i have to listen to the market i don't i can't you know tell the market what i want it's not going to listen to me true and one more question is that if you look back your your career your life would you like to change anything there you know i i get asked that from time to time and you know i could say well i wish i did this or i wish i did that but you know where i am today is it it's it's based on all the mistakes i've made it's based on all the successes i've i've had i'm really not one to look back and regret and do uh shoulda coulda woulda type stuff i'm where i am today because i went through the school of hard knocks now maybe i could have done things slightly differently i i honestly don't know what those things would have been because you know i i learned by doing um my biggest mistakes have been my best lessons yeah and without you know i could say i wish i didn't lose that much money that one day or that one month but it's me it makes me who i am so i i really don't think about it that way i think about here's where i am let's engage with the cumulative knowledge i have and try to be as best as i as i can be here today sure sure um you know the last question before we go to the conceptual discussion is that you know there are a lot of youngsters who have come into the market and uh immediately after graduation they have just gone into the market okay uh and you worked in some reputation firms before you actually came into the market full time for example you worked in goldman you just mentioned do you think that experience of working in a large firm shaped your career to to take a better decision to do on your own or let me put it the other way do you think a youngster should not get into the market from day one maybe work somewhere for some time get that right experience and then get into the market full time i i think you're better off you know not getting into the market full-time right away because you're going to be there making a lot of mistakes not learning from your mistakes rather than getting some guidance from some structured program whether it be you know go get your cmt uh you know for instance or go work for an investment bank under a trade another trader try to figure out different areas in the market and maybe trading is not the right you know route for for for someone out there maybe they're better off as an investment banker maybe they're better off as a broker or going into mortgages or selling insurance you don't know until you try a few things out you know and when i was starting out as a retail broker you know my my manager at the time said you have to get your insurance license and i was like i don't want my insurance license i'm not gonna i'm not gonna pass that i'm not doing it but i did pass it i learned some good things and i was stubborn but you know it gave me the experience to see things differently see things through a different lens if you can work especially if you can you know find a way to go work for a big fund and figure out how the big money really moves but money and markets around uh and then figure out how to you know look at different time frames and that's the key you know it's not just what area the market can be in one of the most important things is time frame and knowing your time frame that we can be in a bull market on one time frame but begin the snot kicked out of us on a shorter term time frame where you're just losing money day after day and people will say hey but we're in a bull market but your time frame is you know you're leveraged up and you know making all the mistakes that young people make um so go you know go get a job somewhere else look you know get a salary get some benefits learn some things swirl your money away do some trading on the side and then progress to being a full-time trader sure that's pretty fair advice uh so brian uh i have i'm blessed that today is the day when market was very volatile and you actually traded from swing to day to day so you know if i can also get some input from you that how do you trade in these kind of a market using the methodology which you will share with us so can we just start the discussion on the concept yeah so basically the you know the markets as we know are fractal and and for people that don't understand what that means it it basically means if you take your analysis on a weekly chart and look at the you know the trends that they're in you could take that same chart not know that it's you i could tell you that it's constructed of monthly bars or candles but it might actually be constructed of one-minute bars or candles and you honestly wouldn't know the difference a lot of the time so the the point of you know fractal is that the patterns repeat on different time frames which is great because that's what makes technical analysis transferable from longer term investing to swing trading to day trading once you learn the concepts of trends how they're formed how they develop how they're sustained where to manage risk underneath successive higher lows in the lungs or above lower highs it doesn't matter what time frame you're on you can you know use those same principles on any time frame and those are you know looking at multi-time frame analysis um looking at you know basic tools price volume and again multi time frame so the three of those are the basis of the volume weighted average price price only price pays volume tells us the intensity of the market moves and time so today we saw the biggest volume in probably a year in the s p 500 we were down a whole bunch in the morning we rallied back and closed right near the highs so it seems as though it's you know a near-term turning point to measure risk against and it's always about risk management true true so let's get it going so i guess you will share the screen and let's uh let's go through the concept you have made a lovely presentation for us so first of all thank you for that okay we're good yeah we are good to go okay so we're gonna focus a lot on you know the anchored volume weighted average price and one of the biggest questions i get is where do you anchor from um and we'll get to that but first you know before we cover any of this the the first thing you have to understand is basic market structure and this is something that i learned from stan weinstein it's also you know been written about by uh wyckoff and a guy named joe kerr back in the early 20s but what it does is it breaks down the market cycle into four stages the accumulation stage is kind of where it's been in a previous uptrend and it's broken down and gone sideways and you know there's a phrase during these you know if they don't scare you out on the way down they'll typically wear you out it's the process of lit ritting the sellers and the buyers regaining control it's basically a period of neutral market you know that that i don't want to be involved in as a trend trader instead i want to focus on for long's the stage 2 uptrend if we're in an uptrend well then we're innocent until proven guilty meaning that you know we expect you know that based on you know charles dow and the tenets of technical analysis one of them is a trend once established is more likely to continue than reverse so i i don't want to buy after the you know five day you know surge but i want to anticipate the little moves after you know a three to four day pullback and use multiple time frames so that's what this chart is showing here on the left is if we took this little boxed in area during this stage two and we said abcd you know if it's pulling back on the short term time frame we don't want to get involved and actually put an example in here with one of your indian stocks and i will forgive me i've never looked at an indian stock in my life just because i you know i i'm us-based i trade u.s stocks but they're the concepts even there you know i i we we can look at some live ones and they're they're going to be the same exact concepts stage three occurs after the markup we have a chance where the market starts to turn sideways and we certainly saw that you know first as the russell 2000 s p 500 and now we're in a stage four decline in a lot of these markets guilty until proven innocent so what we want to do is come up with a plan of action for each one of these stages so in the accumulation stage one where it's kind of going sideways we're going to anticipate where to participate in a new long or we're going to cover our short because it's no longer going down instead it's turned sideways there's no longer an advantage to being short stage two that's where we participate on the long side and we want to avoid shorting now we can make money shorting stocks that are in up trends but the simple math of higher highs and higher lows means the sum of the rallies is greater than the sum of the declines so there's naturally more opportunity to trade the long side and avoid the little pullbacks some people like to you know short the little pullbacks and if you can make money like that consistently that's what you should do and that you know that's one of the keys is as i you know that you know people have to find out what is their time frame what is the market they trade are they commodity traders u.s stock traders crypto traders solely indian stocks it
doesn't matter you've got to do what works for you don't listen to other people and say you've got to do this or that stage 3 you know the the uptrend is kind of exhausted itself you're going to start getting stopped out of your long trades and you're gonna start to say hey it looks like it has the potential to break down so in the u.s market we saw all these big leaders peloton uh you know zoom we saw roku square paypal they were all breaking down prior to the index so we were seeing you know weakness under the surface and finally the index gave it up basically about a week and a half ago so we want to anticipate where the other short opportunities and then in a stage four decline that's where we participate on the short side and avoid the long side again we can make money trading those bounces and sometimes they can be you know some of the most spectacular bounces there are or you know spectacular short-term rallies occur in a downtrending market so if you're nimble and you can day trade for instance like i said you know i was day trading today we you know we did finish positive we were down most of the day so we want to you know anticipate the moves so we're not chasing things participate when we have price confirmation exit when the market tells us to and then avoid it so here's here's an example of uh larson and toubro yep okay so this is i guess one of the nifty 50 stocks and you know on the left we see here's a daily time frame it's clearly in an uptrend you this green line is the 50-day moving average it's innocent until proven guilty with a rising 50-day moving average there are pullbacks in here and certainly you can make money shorting those but the sum of the rallies you know it goes from 1720 to 2000 back down to eight you know 1760. the sum of the rallies is greater than the sum of the declines so this highlighted area here is simply this chart on the right so we're magnifying it to 30 minute candles and i don't even know if that's the proper uh amount of time for the indian market i don't know if those are equal if there are 30 minute increments that are equal like here in the u.s but this is how i do my analysis it's pretty much okay
it's pretty much valid for india as well oh okay good good to know so you know in this period right here just to this side you can see we had you know two down days and then we have this kind of sideways it breaks a higher high here so we're anticipating you know we're avoiding this little pullback right here we're anticipating in here and then as it breaks higher we want to participate and as long as making higher highs and higher lows on the shorter term time frame then we want to stay with that trend and raise our stops up underneath these successive higher lows when it makes a lower low well then we exit that's it the definition of trend is no longer valid for the time frame we're engaged in so there's no reason to be involved any longer so in there you can see that exit occurred you know it didn't occur at the high only the liars exit up there right um so we want to participate you know in here we don't want to try to buy the low we in other words we don't want to buy pullbacks we want to buy strength after the pullback and then we want to exit as the trend gets tired and starts to make that first lower low it's got this high it's got a lower high than a lower low so as it breaks down yes of course you can short this and make money but because it's in a primary stage two uptrend i look at and say i'd rather wait it out wait for it to undergo accumulation again and have the trends aligned at this point right here the trends are aligned the daily time frames is an uptrend in this 30 minute time frame is an uptrend that means i have the maximum you know i have i have momentum in my favor i ha i'm getting in at the beginning of this unfolding move i don't know how far it will go but you know if it's truly an uptrend it's gonna at least you know take out this prior high which of course it did and you know then manage risk and again you can make money shorting here but my philosophy is i want to look for trend alignment and i personally avoid these because they can go against you really strong and if you're going to short them you know i like to say do it with half a risk unit if your normal risk unit is a thousand dollars you know when trends are aligned only risk five hundred dollars you know based on where your stop is and that's the way you know i like to look at you know first market structure and then start to add the tools sure brian uh this uh one day and half an hour is it your standard template or you uh you keep on changing it depending upon the instrument or market condition or anything yeah well on my screen so i've got several screens of course um i've been doing this 31 years and i've you know started adding more and more stuff my analysis remains really simple but i like to have the extra real estate so on my screen i have a weekly chart up here then i have a daily a 65 minute 30 minute 15 minute and a two minute so when i click on a symbol it populates all of those at once so i'm instantly aware of you know the really big picture on the weekly time frame the daily time frame and that doesn't really get a lot of weight in my decision for a swing trade but i still want to be aware what are the key levels on the bigger time frames am i pressing my shorts too too far because we're coming into this bigger level where am i you know pressing my lungs too much because we're coming into this prior big level of support which has the potential to become resistance so it's it's my my main time frames i guess vivek you could say would be a daily time frame is where i like to identify what my opportunity is and then i will look at a 65 minute or 30 minute so in the us we're open for six and a half hours a day that's 390 minutes so i want something that's equally divided into 390. so a 65 minute time frame there are six equal candles if i used an hourly chart it would be from 9 30 to 10 a.m eastern is would be one candle and then 10 to 11 11 to 12 so i'd have one 30 minute candle in six six sixty minute candles so the way around that is to make 65 minute candles there's six of those that are equal or there are 13 30 minute candles 26 15 minute candles 39 10 minute candles etc so that's where i you know the the 30 minute and 65 minute i kind of look to see what's my risk reward is there's sufficient reward potential here for my perceived risk and then the shorter term time frames down into that five minute and two minute area that's where i really like to fine-tune my entries look at the daily volume weighted average price maybe yesterday's volume weighted average price and really fine-tune my entry so i can get in just as the momentum is beginning on the shortest time frame and hopefully it will become aligned with the bigger picture and that gives me a head start on most other people who are waiting for breakouts waiting for volume to come in to me it's price based first i'm aware of the volume patterns and i want to see you know volume expand on the way up peak at the turning point diminish on the retracement and then as it starts to rally again when i'm buying the volume isn't there yet the volume comes in an hour three you know three hours a day later often in you know i'm i'm trading liquid stocks to begin with but i'm saying the expansion of volume where people who've been waiting for volume i might get involved in a 30 dollar stock and they're getting involved at 3120 because that's when they start to see the volume by that point i'm taking a third off and saying go ahead here's your breakout there's your volume take some from me so it's it's always about anticipating and risk management i want to take that first third off even though i think it might be able to go to 35 38 dollars per share i'm going to sell some at 3120 or whatever the number might be because i want to reduce my risk on the first part maybe raise my stop to break even now i've taken all the risk out and you know that's really the key is risk management sure so can i safely assume that uh you try to enter in the uh towards the end of the stage one uh with the lower time frame so that you are literally the initial ones to enter the stock yeah it's actually just at the very beginning of that stage two on the shorter term time frame and you know i i've gone in at certain times where i've seen that level where it's it's had resistance the last two and a half days at 31 you know 31 dollars or 30 dollars per share so i'll go in there and it'll i'll look at my you know i'll set an alert at 29.90 i'll put it in a level two screen i'll start watching it if i start seeing a little bit of volume or you know i i see the the offer is disappearing you know and it just seems like the frenzy is about to build for this breakout i'll go in at 29.95 and i'll put in a uh a limit order for
for 5 000 shares at 30 and 10 cents if i see you know 1800 shares offered i'll clear the book and create that momentum and then if i get filled on you know eighteen hundred shares then i've got thirty two hundred shares bid at thirty dollars and ten cents that'll induce other people to either join the bid or cut in front of me or go take the offer so i'm trying to help nudge it at that point as well now i don't do that all the time and you really need a a good healthy market to do that yeah and gotta you you've got to have confidence in what you're doing and you know position of strength for the week and for the month so you know i don't want to give the impression that i'm out there moving stocks yeah but but sometimes i'll try to you know provide that catalyst as well sure got your point yeah please continue okay so what we're going to mainly talk about is the volume weighted average price and this is the scales of justice and you know the the the ladies you know the the scale i don't know what they call her i should know this um is blind to all evidence he just seeks the truth so what we're talking about in the market of course is supply and demand and what we're looking for is the equilibrium points and the points where that comes out of balance and then we you know in in the volume weighted average price allows us to objectively do that we are basically looking at this market with blinders in terms of support and resistance and you know who has control the buyers or sellers so number one price is the truth it's the final arbiter people argue all day long on twitter or whatever about no you're not right about that chart or you know you drew that trendline wrong i really don't care i'm you know i i'm not i i never debate people about a stock and you know i've been doing it long enough i have faith in my system that i know where my stop is if you don't agree with me go short it and i'll buy it from you don't argue with me about it i'm not you know this is an academic exercise we're not competing for a phd degree we're trying to make money so if you think it's that i'm wrong go take the other side of the trade because price is truth and it settles all of those arguments and i'll know i'll get out if i'm wrong i've been wrong a lot i'll continue to be wrong a lot but i will protect myself and get out yeah what we're talking about are the laws of supply and demand they call them laws because they are truths they are not the theory of supply and demand they are actual truths of supply and demand and that's what the volume weighted average price really measures without any doubt at all it tells you definitively from any point where we start a v web who's in control the buyers or sellers so it's really the most objective measurement you can find and i i will challenge anyone to show me something otherwise but it doesn't exist so we want to be aware of where is the stock in relation to the volume weighted average price what's the direction of the volume weighted average price and of course we're always looking at multiple time frames we don't want to fight the bigger trend because we see a short-term you know opportunity if we do see that short-term opportunity it's against the primary trend again smaller risk units to compensate for the fact that you're not trading with the primary trend so the way i look at the volume weighted average price levels people always say hey is that you know do you buy pullbacks to the 50-day moving average just just as an example to to talk about the psychology the the 50-day moving average often acts as support the reason it often acts as support is because we have so many people trained to look at it who have been taught that it is support so they stop shorting as it gets down to the 50-day moving average they might start to cover some of their you know maybe it was two standard deviations above the 50-day moving average so some big hedge fund shorts 100 000 shares and they cover it down at the 50-day moving average um they you know they stop selling they start buying back and then what is sideline cash to do we've got a mutual fund with 5 million shares it ran from 30 to 35 they sold uh what i said they have 5 million shares they sold 200 000 shares on the way up 250 000 shares it pulls back to the 50-day moving average they'll stick in a bid for 50 000 shares because they want to protect the rest of their you know four and a half million shares they have left and stick in a bid to induce other traders to come in and say hey look at that big bid there's buyers there so we have lack of supply we have more demand from the shorts covering from the institution trying to protect their position and then you have sideline cash saying hey it's at the 50-day moving average the 50-day moving average usually acts as support i'm going to stick in a bid and lo and behold that's why we see the 58 moving average or a 61.8 retracement or a volume weighted average price or whatever technical tool you know trend line often becomes supporter resistance because there's enough people coming to that same conclusion in the same spot so if we have a 50-day moving average lined up with the volume weighted average price since the beginning of the year and a 61.8 percent retracement you know let's just say we have all these three things coming together maybe we have the fibonacci group all coming to the same conclusion based on hey i'm going to stop selling short i'm going to start buying back you know in in we have they become stronger when there's a confluence of indicators so the way the way i look at it is again we identify that key level on the bigger time frame and to me that's the daily time frame and then we look for evidence that the buyers are actually gaining control we don't just stick in bids blindly hoping that it's going to occur we don't have to buy 300 000 shares we're looking to buy you know maybe 500 shares maybe 5 000 shares maybe 10 000 shares you don't have to do the dirty work of creating the support let the institutions do that so to me it's a place to say it's a level of interest let's look at shorter term time frames one question right so you know bran all these standard indicators like 20 50 100 200 these are these have been used for many years and you know what i'm seeing that uh the algos they have been mapped to these indicators and because algos have also this character of uh fooling people so they will typically take the price just below the 50 period moving average and reverse it from there so what i am getting a sense after of your discussion is and please correct me if i'm wrong that only one number may not be a perfect conclusion maybe a convergence of viva 50 period moving average and certain more indicators and if you have a range that okay the demand zone is around 30 to 30.5 that's the range typically one should accept as a demand zone rather than one particular price point am i right or wrong oh you're absolutely right and you know to me it's a bonus when you see a confluence of indicators i was just trying to create the psychology of how each of those groups might come to the same conclusion in that same area right and then what we do is we say okay we've got this level the 50-day moving average let the other people let the uneducated people stick it in at 30.08 right because that's the number but we have the predatory algorithms as well as what you're talking about who are you and these are designed to go into these widely watched areas run stops flush them out and then jack it right back higher from failed moves comes fast moves often in the opposite direction you know those those bare traps those little shakeouts so again they're a level of interest and what that means is you know people say hey it's at the 50-day moving average that's support we don't know that until it runs away from the 50-day moving average it runs from 30 50 up to 32 then we can look back and say hey look at that wasn't that awesome the 50-day moving average was support yeah well the next time it's not going to be it's going to go through that and it's going to drop 15 20 percent and people are going to say what happened the 50-day moving average you know it's it's support but it didn't work the market's rate look at it as a level of interest and what that simply means is look to the shorter term time frames and look for evidence that the buyers are gaining control and as it comes down after a five day decline it probably takes a day to two and a half days of trading back and forth in that band that you said thirty dollars and thirty dollars to thirty fifty and if it comes up to thirty forty eight one day thirty forty seven then thirty fifty two two and a half days later that's where i want to buy i want to buy a 30-52 and maybe the low the first time was 29.95 then 20 30 and 12 cents maybe i'll stick my bit my my stop at 30 and 10 cents a couple pennies below that most recent relevant high or low so i so in the short term i have that higher high and i want to set my stop under the most recent relevant high or low because if i have a higher high to me it says now the short-term time frame is looking like a budding uptrend yeah i have my higher high what would what would break this emerging definition of uptrend well if it made a lower low so if my most recent relevant higher low was it what did i say 30 dollars and 12 cents if it breaks below that well then i want to get out of the stock cut my loss i can always get back in but maybe it drops down to 28 27 26 etc sure sure go to the point yeah so it's it's multiple time frame align you know analysis and trend alignment let me uh do this so again as i mentioned earlier price volume and time that's the components of the volume weighted average price time is the most subjective because we all have different time frames i'm a swing trader some people listening might be investors some people might be scalpers which you know they're trading off 30-second charts let's say whatever it is that's your time frame it's not a bad time frame you can't feel bad let other people say oh you shouldn't do this or do that you do whatever works for you so what we want to do is say who's in control the buyers or the sellers or do we have this equilibrium so when the demand is greater than supply obviously what happens prices move higher that's a stage two uptrend when we have sideways action it's either after a rally and it starts to turn sideways possibly distribution that bleeds to a decline or after a decline it accumulates and then leads to an uptrend when supply is greater than demand prices move lower to find enough demand to support the prices so when we look at a volume weighted average price and here this is you know just one day and these are i think one minute candles here this market gapped up this particular day so you anchor a volume weighted average price from the very first minute of the day market rallies up pulls back finds buyers who are defending that volume weighted average price level has another rally stays above that v web stays above it crosses back and forth now we're kind of in this equilibrium level it's gone sideways you know if it broke back above this 360 550 it would have been a continuation instead it broke down through this little support in the v web and then the sellers took control we had lower highs and lower lows so for a shorter term day trader you know there's a great opportunity here you know let's say we just shorted it right here as this little rally or let's say even right here at 360 355 let's call it you know with our stop just above this little lower high that's a great little day trade on these two minute candles on a bullish time frame what we want to see a a you know here's a one minute time frame a bullish chart will tend to find buyers at the rising volume weighted average price so if the market is above a rising volume weighted average price for the session i don't want to short it you know some people will try to short it up here and cover for 12 cents i'd rather look for it and say i want to buy it as it's breaking this range here you know this tight range buy it right here with a stop worst case under here maybe even under this little low from a very short-term standpoint and again the fractal nature of the market says this could be weekly candles right here there's no difference in the analysis the opposite of true of course on the on the short side sure so why is it called anchored uh volume weighted average price what are we on here good question so the traditional volume weighted average price the one that we hear about the v app is for one day the volume weighted average price is you know was a benchmark for institutions to say how well is my order executed i i run a hedge fund and i give goldman sachs in order to buy two hundred thousand to sell two hundred thousand shares of this stock here uh it you know closed the prior day at 177. so i want to know how well did they do for me
if if the volume weighted average price at the end of the day is 170 80 it means the average price based on volume every single transaction you take the average price and divide it by the volume the average price it traded at was you know the the arithmetic mean is 170.95 if they came back to me and said hey we sold your order 166.50 or 168.50 i'd be like man you know that's two dollars below the v web you guys what are you doing you you screwed me over but if they you know let's say they executed the bulk of the order up in here in the morning because they knew that it was going to be you know a lot of pressure or they anticipated that and they came back to me and said hey we filled your order 170 85. 71.85 i'd be like you guys are great i'm coming back and giving you business in the past though before the volume weighted average price became a benchmark in 1988 uh it you know an institution had no way of knowing if they were getting robbed by their broker which they probably were back then before we had this transparency so that's why the v app was invented the anchored volume weighted average price is when we set it from any point other than the beginning of the day so we can anchor at the 10 15 low of the day and we can set our anchor at that 10 15 low it comes down starts rallying up we say that looks like a high volume event at 10 15 a.m i'm
going to anchor a v web from there and see if the buyers can maintain troll from that point forward and then it rallies up makes a high at 1 15 p.m and backs off you know a half a percent i know that was an important high i'll anchor a v-wap to that and again i'll do that on daily charts i'll do that on weekly charts i'll do it on you know 30 minute time frames so the the anchoring bias is you know something that it's called a heuristic it's uh you know it's it's that our decisions are based on you know our anchor point in our mind so for instance the price we pay for a stock we're anchored to that that's how we determine success or failure in the market if i pay thirty 30 and 52 cents and the stock goes to 33 i know that compared to my cost that's the most important price what i paid if instead it's down at 29 well then i know i'm not doing a great job so i'm anchored to that we're all anchored to a certain you know price so price has memory it wiggles into our brain and you know gets stuck there so it's how we measure our success the way to really think about it you know the the volume weighted average price is dollar cost average basically it's the same thing if you took a thousand dollars each month and invested in an apple in this case you know the stock is trading between 225 and 197 when i put this together so in the very first month you bought five five shares at a cost of 199.23 that was your thousand dollars well the next month the stock dropped to 190 so it was down nine points so we were able to buy 5.2 shares when the stock was up at 235
we bought 4.25 shares so at the end of this what we want to say is here's our volume weighted average price our average price was 206.60 that's our cost basis that's our v web our volume weighted average price that's the way to think about it it makes a lot more sense when people think about it instead of an institution buying 500 000 shares or whatever so we're anchored to that we want to know you know some of the guidelines very similar to a traditional time-based moving average this is a cumulative average the volume weighted average price takes it from one point forward in in you know ads and adds up all the volume divide it adds up all the prices times the number of shares divided by the volume so we want to be aware just like a 50-day moving average is it rising if it's rising it means generally we give the benefit of the doubt to the buyers if it's declining we give the benefit of doubt to the sellers if it's flat and the prices are going back and forth above and below it a lot of people will say well that volume weighted average price is useless brian it's just going back and forth above and below it that's the beauty of it that that's the value right there it tells us there's no trend here stay away from it wait for it to break the resistance by that break of the resistance set your stop and see if a new trend emerges it's an alignment with that longer term time frame so there's value in recognizing those neutral periods because it says stay away don't try to force the trade when nothing's happening so is it above or below the v web what's the direction of the volume weighted average price so what we want to know is where to anchor from this was a period with you know back in the fourth quarter of last year for the nasdaq and it could be any period you know any time i always anchor from the beginning of the day i from the beginning of the week so this was a monday that monday you know prices sold off and then the next day they got back above the volume weighted average price for the week so at that point it was you know one day plus one 30 minute candle here so it's not a five day volume weighted average price not it's only a five day volume weighted average price at the end of the week instead it's the week to date volume weighted average price and you can see how the buyers defended that and they defended it the next monday morning and then that next tuesday the sellers took control and they maintained control on rallies up to the volume weighted average price from that monday and into the next week they did and then we got back up above that volume weighted average price so this looks more confusing than it actually is because i added three of them at the same time but i'm trying to paint a picture of how they come together and perhaps i'm doing it in the wrong order this was some something i put on uh on twitter so i put a lot of these on twitter and then follow up with and say you know here's the volume weighted average price from the peak amd had this really big rally that you can't see because i didn't include that here but this was the peak and we knew that that was the peak when it broke down basically let's say right here because we had a lower high and then a lower low at that point so once we have that lower high and lower low we anchor a v-wap off of that peak and say let's see how it progresses from this point forward and you can see three four days later rallied up to that volume weighted average price from the peak sellers were there waiting and they knocked it back down and they knocked it back down again over here but then we saw at the same time when it made this lower low it then rallied up and broke these highs and it looked like okay this is a higher high still below that v web but this is a higher high and that's a an important low so let's anchor a v whap off of that so it rallies up it gets back above the volume weighted average price from the peak it was extended on a gap so we anchor one off of that now the range is really tightening in here and i was looking for this as a potential trade above this peak right here to buy along if it had gotten above that level i was planning on going long with a stop under this low sure maybe even that low because that's the most recent relevant high or low we saw that there were buyers defending this volume weighted average price so if it got above here and then failed to continue higher i would want to sell as it breaks back down instead what happened it broke down so you know we didn't take so there was no trade so we anticipate during these tighty consolidations of and we wait for price confirmation it's it's very tempting to buy in here because hey they've got good earnings the analyst said this these guys on tv said that but until it confirms price wise that it's made a high or high it's only a candidate for trading it's not so we want to you know wait until we have that price confirmation this is something i like to tweet when the market's in a downtrend i tweeted it last monday saying don't buy the dip buy strength after the dip um but what we see is you know so here's you know for instance starbucks starbucks is in this downtrend and basically at this point right in here maybe you know late february early march we knew that it was making lower highs and lower lows so we anchor a v-wap off that peak and people say hey starbucks is a good company i'm going to buy it at 75. that's in a downtrend help yourself
i want to see it back above this volume weighted average price i want to know that the average participant from this point is now making money on the long side i want to know the average short is losing money and that's what it's really telling us so it continues lower lower lower all the way down to 50 bucks per share so the people bought at 75 thinking was down too much they lost 35 you know 33 percent just a week and a half later in a so-called quality name instead you know don't buy the dip it rallies up it makes a higher low and then it breaks that volume weighted average price by strength after the dip that's where we want to buy that's where the buyers the average participant long from here is making money at that point the average short is losing money so the buyers are back in control we can buy here with a stop under whatever high or low is appropriate for your time frame it rallies up again it pulls back to the conjunction of the volume weighted average price from this low and this peak right in here i don't buy there sometimes you know a lot of people want to buy it there fine you can do that i want to buy it right here as it gets back above this volume weighted average price and that's flattened out so you calculated sorry to interrupt me in the middle so basically what you do is for every new swing high and swing low you have a volume weighted average price perfectly said gaps or what period sorry whatever time frame you're engaged on okay so you know if if i'm if i'm day trading the uh the e-mini i'm gonna do this on one minute time frames sure i'll look at that low that occurred at 10 48 a.m and i'll put a volume weighted average price off that i'll look at the high at 11 18 a.m and put a view app on that i'll see them come together in the same exact way so again you ask a great question and it's it it it sounds confusing at times and i that's why i like to use different time examples here i like to show an example of a one minute chart and some swing traders investors are going well that's just crazy this is just crazy day trading stuff it's the same concepts on a daily time frame it's the same concept over here on the right on this 30 minute time frame where we do the same exact thing where we see you know from this peak here and this low the price converges energy builds it makes the higher high right here and we know for a fact at that point that the average short from here is losing money we know for a fact the average long from here factually is making money this is supply and demand we have actual price based evidence you cannot refute it so to take it right there rather than wait for the breakout over here a couple days later you know people want to buy this breakout like i was talking about earlier i want to buy here and what happens we know the volume typically will you know do something like this the volume will be you know like this in here and then it'll start to go like that and then we'll have the biggest volume right there and then it pulls back and then we see the volume like this people are like you know here are saying hey look it's breaking out on big volume i want to get involved and i say sure take a third of mine i bought it right here and then what happens to those breakout buyers ah breakouts don't work the algos got me and you know what they probably did and i sold some to you too thank you very much for being uneducated um so why do you say one third i'm very curious because you have repeated this twice thrice so do you have a staggered way of booking profit as well that's a good question i i don't really have a target on day one i will often look at daily r2 you know traditional floor trader pivots yeah daily r2 is a place where i think i've seen some statistics you know 80 percent of the range is 83 of the range is typically contained within daily s2 and daily r2 right and you'll often see the daily r2 is the exact high of the day because there are programs saying 83 of the time it trades within there let's sell a bunch of our stock at that level and it becomes another self-fulfilling prophecy i add shares there so i'll take a third off there i'll also often you know so that might be right here on that day you know just a you know a two dollar gain on 120 stock even though i think hey it's in an uptrend i expect that it should at least go to here and continue higher but then as it breaks to this high i'll say listen where does it come from it's just come from you know 1 1 11 to 120 it's getting a little bit extended it's up you know eight percent in five days i'll sell another third on the breakout or at least raise my stop very close in there so that if that so-called breakout fails i'm gonna get out of third really quickly and i would probably have my other stop right here and i would have been stopped out of the balance on that so so a third here a third here and a third here and i might have gotten back in or i might not get back in but i'm okay taking the meat of this move and waiting for the next one sure and you don't add your position uh when you are in profit like with every new breakout you add more positions i i don't add on breakouts what i might do is something you know along the lines of this is that if on day one you know i buy right here your rallies up and let's say this is daily r2 and i sell my first third and then it comes back down like this and i have my daily view app is right here right and the vwap off the peak is right there i might add that third back right here and set my stop on that third and then as it rallies like this i'll either set my stop under this high or low or something like this and and you know get stopped out right there or i'll sell by the end of the day at least you know that third that i bought back and hold a two-thirds position so i will day trade around my swing trade position but i'm not you know if i buy it here and i sell there i'm not going to add here i'd never want to buy the breakout i want to buy after the pullback no same same story once we have this compression of range and the volume weighted average price off the peak and the low you know kind of converge that tells me this is factually where the buyers are in control i have the most upside because it's really just beginning that trend and i have the least amount of risk because my stop goes under this level here so that's where i have the most bang for my buck and i can maximize my position because i have a uh you know tighter stop relative to the guys who buy up here if they're using this low as a stop they're gonna trade a third the size and have the same amount of risk i have three times the size that they have and i'm taking a third of my risk off essentially reducing all the risk because now if it comes back to break even i'll i'll get stopped out at that break even but if i took a dollar profit on a third of it i'll still make 33 cents average on the full position yeah yeah fair point got it okay so again buying the dip i don't want to be labor that point over and over again you know we so as you just observed and i should have labeled it on there is that you know from swing highs and swing lows regardless of the time frame from earnings so you know here this company reported earnings that gapped lower but look what happened the buyers came in after a couple days and we took control now you know people will sell that you know say hey my target is the you know gap closure fine um but then again they had another earnings report and another earnings report so it you know once it gaps here we anchor another volume weighted average price and look at how well that was defended we had a little shakeout prior to the next earnings report and then you know this was the next earnings report so we anchor a v-app off of that and look where the buyers showed up again so from this one you know buyers took control it didn't pull back all the way but it maintained above that we had a new momentum event once again earnings buyers defending it over and over again showing that this is how institutions buy they say i like that i like the earnings report let's buy 5 million shares between now and the next quarter's earnings report and we want to buy 5 million shares so we're going to space it out and anytime it gets down to v web since that event we're going to be in there with strong bids that's what's happening they're trying to absorb as many shares as they can because that's their fair value since that event we're anchored here we're not anchored to the beginning of day we chose that then we could anchor one here and it would look like this right and we could anchor one here and it would look like this so we want to be a buyer there if we missed it somewhere over here it would look like this and this it would look like this and you know this time it gapped and again you know we anchor it there buyers came in and defended it so they're great for using it as stops as well when it tests that volume weighted average price is what i call the handoff we we then say okay it tested that successfully then prices pushed higher so if i am a buyer here this was an important high or low maybe i'm going to set my stops underneath this rising volume weighted average price so it's a it's a really versatile tool to use for entries for stops for exits um it's dynamic support and resistance it's not just horizontal support resistance so from this low in you know january of whatever this stock is you know buyers emerged each of these times it wasn't perfect but this is a level of interest and when we see that level of interest we look at it on shorter term time frames for the evidence and maybe we buy it right here or maybe we buy it right here we buy it right here with our stop under there we buy it right here we're not buying it i'm not buying it at least right on the touch i want to buy as it says yes that was support because we moved away from it and now if it breaks below that then i'm going to stop out and then the v wap starts to turn sideways it breaks down it fine now instead of being support i
2022-02-10 17:24
