Bear Bull Traders Trade of the Week September 25, 2020
VWAP Reversal
This strategy is used during reversals often after getting a push from the VWAP or a key level after 30-45mins of the market open.
Time: This strategy can be used anytime during the day. It is more prevalent after the first 30mins of the open. The earlier this reversal happens, the longer it can go throughout the day and end up being a trend trade.
Indicators: The best indicator for this strategy is holding of a key level followed by increasing volume. Many times the price will break VWAP with heavy volume and then retrace back to VWAP giving the opportunity to enter. If the candle closes above VWAP then that can be considered as a point to enter the trade. After that, the price will shoot up to the next level and retrace back slightly, this can be good opportunity to add.
Confirmation: The following confirmations were used for this trade on ROKU:
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- ROKU was holding the 183.60 level.
- VWAP break towards Long
- High volume coming in with the break of VWAP.
- Second candle after the VWAP break made a higher high indicating that this will NOT be a reverse ABCD but rather a reversal.
Entry Signal: Higher high being formed after the price crossed VWAP with volume. Entry at 185.30
Stop Loss: Stop loss was placed a few points below the previous candle. Stop loss was at $184.30
Target: Initial target was 2R, however, given the volume with which ROKU shot up, only 25% was covered at 2R. Added about 50% back during the small pullback and moved stop higher. Covered rest of the position depending on tape and level 2 readings. Last add was not at the correct price so moved stop to breakeven price and got out when it touched that price.
Rule: Get out of the trade if VWAP is lost.
Trade Management:
ROKU didn’t show much activity during the pre-market, however, for ROKU, that is quite normal. Once the market opens, it trades well so I had it on my secondary list.
Once I saw that SQ didn’t continue with the reverse ABCD and rather was holding the 183.60 level, I started looking into it. And when heavy volume came in during the break of VWAP I was ready to enter the trade. At the next minute when it made a higher high, I entered and covered 25% and the next moving average as well as at 2R. Risk was $1 per share with stop slightly below the previous candle. I added when there was a small pullback. I covered depending on the tape readings and whenever I saw weakness. The last add was made hoping for ROKU to break HOD but it failed, because of the add, my breakeven had to be moved much higher so I got out when price hit my break even point. By now I was way above my goal for the day so no regrets.
The best part about this trade was my patience and confidence in the trade. I stuck to my original plan and added as per the readings of the tape.
The third add was not done properly. I was expecting a pullback to VWAP since ROKU had gone up a lot by now, but instead I added a bit early and had to get out early. Had I held on to my position and added at VWAP, I would have had a much comfortable average price and could have held onto the position longer. Another clear mistake in this trade was not adding when ROKU was about to break the HOD. I should have known that volume would come in at this point and price would shoot up, giving me a comfortable average price, but I missed this opportunity during the trade.
A good improvement for this trade would be to learn how to hold on to trades longer and be patient with adding.