Transcription
What's up, everyone? All right, so in today's episode, I'm going to walk you through how to use the view app for day trading. The view app is an acronym for the Volume Weighted Average Price, and it's an incredibly popular day trading indicator. I think almost every day trader out there uses it, uh, I suppose with the exception of maybe some traders who are using like some really obscure, uh, trading indicators. But, you know, I'm a big advocate of using what other people are using because I kind of have this analogy that the whole reason traffic lights and stop signs work is because drivers use them and they understand the language of the road. And the language of the financial markets is very similar. We are communicating with these charts, and these charts are giving us very clear buy or sell signals through the chart patterns, through the position of the indicators. And so, depending on which technical indicators you use, if you're not using the Volume Weighted Average Price, you're actually missing what are at times very obvious resistance points or very obvious breakout prices.
So, let's jump into the chart. I've got the whiteboard, I've got the charts up, so let's go ahead and jump in. And I'm going to go full screen here on the charts to just get started. So, I'll go on a five-minute time frame, and what I want to start with is just showing you how to add the Volume Weighted Average Price to your chart. This is the layout that I use. If I double-click on any of my indicators, I can pull them up here. This charting software is called E-Signal. It's good, it's not phenomenal, but nothing is perfect. Anyways, it's what I've been using for a long time.
So, if I go to the plus sign, I can search for, um, I think I could just search for view app, and it's a built-in study right here. Yeah, it's a built-in study. So, just like that, I could click on that and I could add it to my chart. But, of course, I've already done it here. Although, let's just check to see what it said. So, 'Originally used by investment funds and money managers, this indicator has become increasingly significant to technical and day traders as it provides a way to determine the general direction of intraday prices. This indicator is available both as a built-in study.' Okay, so I have made it orange, but you could do whatever you want. And I made it, I made it a dotted line or a dashed line instead of a solid line, but again, that's just my personal preference. But this is the way my charts will always look. So, anytime you're looking at my charts, this is what you're going to see: view app in orange, dashed line. And we're going to close it.
So, the other indicators that you see on here on my charts, I've got the 9 Exponential Moving Average, which is this gray indicator, this gray line right here. And you can see how the price really does ride along that nine moving average as it goes up. And then I have the 20 Moving Average as well, which is in blue. And you can see that on steeper pullbacks, the stock does pull back to the 20 Moving Average. So, these are moving averages I really like; they're both exponential. And then the Volume Weighted Average Price kind of fills in with sort of that final level.
So, the Volume Weighted Average Price is like a moving average, except that it factors in volume. So, traditional EMA, SMA moving averages, Simple Moving Averages, Exponential Moving Averages, what they are quite simply in a Simple Moving Average is it's the average price over the last nine periods, or whatever the period is that you're using. If you're using a 20 or 200, it's the average price over those candles. So, if we look at a just sort of an example, if you have a stock that goes up really quickly like this, well, the, you know, of course, candlestick chart, it goes up pretty quickly, maybe pulls back for just a second, and then goes up a bit more. This is what the moving average would probably look like, something like this. And so, the way it's doing it is it's saying, 'Well, what was the average price, you know, here, here, here, here, here, here, here?' And just taking that average. So, this is the average price over the last, you know, 20 candles or whatever it is. So, you know, 20 candle or average price, and then divide by those 20 candles, that's the average. So, it's always lagging a little bit behind the current price. But one of the things that's a little bit tricky is that sometimes you'll have a stock that moves up very, very quickly, but it's on light volume. And so, the moving average is going to move with the price, but it doesn't give you really a true reflection of what the average price is for the stock.
And so, the Volume Weighted Average Price, it's not used on daily charts; it's only used intraday. And starting at 4 AM, the beginning of pre-market, it is the average price of the stock including volume. So, it adds this extra data point, which is volume. So, you've got the price and then the number of shares. So, you know, if you had, just for instance, you know, a stock that had, um, you know, a thousand shares, you know, at, um, you know, ten dollars. I don't know why I wrote that in reverse, but, um, ten dollars, a thousand shares. And then you had, uh, let's say fifteen dollars, and you had ten thousand shares, right? So, $15, 10,000 shares. The average price is certainly in, in traditional SMA, the average price is $12.50, right? The average between the two. If it was over a stretch of time, if that was the beginning, that was the end, your average is $12.50. Well, clearly, that's not the Volume Weighted Average Price because only a thousand shares trade at $10, whereas 10,000 were at $15. So, the V web in this case would probably be like, you know, $14, I don't know, whatever it is, you know, $14.80 or something like that. And this is valuable to know.
So, if we look back at our chart, the reason it's valuable is because it represents the Volume Weighted Average Price, the equilibrium point. It is, it is literally the average price of the stock over the day when you factor in all the volume. And so, it, it tells us basically this is the equilibrium point for a stock. And then we can look at that and we can say, 'How extended is the stock off its average equilibrium price?' Now, the v app will go up and down throughout the day as the stock price changes. But how extended is the current price over v app or below v web, or when it's trading right at v web? It's kind of like this slack, it's like a slack line. Like you've got this, it's, it's actually a slack line, of course, it has tension. But in this case, it's like, it's like a rubber band with no tension on it. And the reason that's valuable is because it can be one of the strongest places to buy a stock. When you buy a stock that's really stretched out and extended, there's more risk of it snapping back, right? And you get that reversal and that correction coming back down. If you're getting in when it's already really slack, then that's where you're positioned with a lot less risk for an extension moving up where the tension starts to increase, or a selloff coming back down.
So, let's go back to our chart, and I'll show you, um, a couple of examples here. Let's see, um, I'll just go full screen on this real quick. So, this is going to be an example of Volume Weighted Average Price. And you can see here this orange dotted line. So, the stock, look, look at how quick the Volume Weighted Average Price moves up right here. It moves up so much faster than the moving averages. Why? It's because of the volume. See the volume bars right there? Now, if you're a trader, if you're an active trader, you know how important volume, volume bars are. We need volume, we look at volume very closely. So, right in here, those volume bars, that's, I mean, yes, you've got the stock moving up here, but then all of a sudden the volume pulls it away. And so, the view app actually goes above the moving averages, right? And it stays above those moving averages through this area as the volume continues to be at relatively high prices.
But then the stock breaks below v web, and it breaks below it on somewhat lighter volume, but it is still below it. So, now this becomes a bit of a resistance point. We're below this critical level. It sells off, and it comes back up to this sort of slack, you know, equilibrium price right here. And this is a typical fade off the v web.
So, the reason this is important: what if you were buying it right here? What if you're like, 'Oh, I'm going to get in right here because it's kind of breaking over this pivot here, and I think it's going to go back to the highs'? Hold up! You've got the Volume Weighted Average Price resistance here, and that is blocking the way. While it's not impossible that we could break, it is almost definitely going to see some resistance at this level. So, if you don't have up on your chart, you're, you're missing a very clear signal from the market that's saying this is resistance. So, it sells off again.
Now, it comes back up again and hits resistance, right? It hits it right there. But notice what happens on this time right here. It pulls back, it holds that level. And if it can break through that resistance, this is what we always say with trading: if a stock can break through resistance, then that previous resistance becomes support. And so, in this case, we've got, we've got our dotted line, which is the Volume Weighted Average Price, and the stock breaks through the v-wap right here. All right?
So, first it came up to the v web, it then pulled back for one second right underneath this Volume Weighted Average Price. So, it pulled back, and then it breaks through. What's very common is a break and then a retest. So, it comes back down and re-test this level. And let's look at our chart. You can see that that's exactly what happened on the chart. It broke it on this candle, and then the bottom candle wick right there, can you see that bottom candle wick? I know it's small, but it came back and it retested that level. So, it came back, it retested the v web, and the previous resistance, this level, which was previously resistance right here and had already been tested earlier in the day, now is becoming support. Now we can be a buyer right here at this level, right in the air, right in here, right in here. And this is your max loss. Your stop is now right below or right at the support level of the Volume Weighted Average Price. And now you have an opportunity. And this is what you often see: buyers come in right here, and then we start to pull away. Why? Because they represent, they understand that this represents new support.
And anyone who is short, thinking that this would fade off the view app as it did earlier, earlier it came up, it tested v web, and then faded the set. And that's fine. So, some people will take this as a short position as a fade off v web. That is a valid short entry. You're shorting for a fade off v web. Okay, fine. But if it breaks v-wep, you have two, two things that could happen. One is it breaks and it immediately reverses. And so, when that happens, you get the break and then you get a rejection, and it drops right back down. And this candle ends up having, you know, whether it's on the fight, it's usually on the five-minute chart, it ends up being a candle with a topping tail that pierced through the view app, couldn't hold above it, and drops back down. False breakout. That's a fantastic short on the false breakout. All right? Your stop is now at the high versus being short for the breakdown below v web. But the second thing that can happen is that it holds this level. And when it does, then that's where you get short covering here as it finally is breaking through what would be the stop for a short seller if they didn't have a stop right at v web. Now, sometimes a short seller will stop as soon as it breaks. They won't even wait for the risk that it could false break and go back in their favor because sometimes these will rip through so fast. The v-wet breakout will go right into a halt. And then all of a sudden, you can have a stock going through the high. And, you know, if we look at the price on this stock, this went from $14 up to $16 bucks. You know, that's a solid squeeze on the break of v web.
Now, let's look at another example here. This is one of the powerful ones. Okay, so on this one here, we've got the stock vwap, of course, you know, right here, the dotted line, right? Again, about 8 AM, a lot of volume comes in. The v moves up very quickly. It's actually between the 20 Moving Average and the 9 Moving Average. Stock pulls back to the 9, comes back up. We get a double top pre-market, and then coming into the open, we fade. We, we catch support at v wap for a second, but then it breaks below it. It tries to come back up, and once again, a very clear short fade off v web. So, it sells off. And this move right here, didn't really see it coming, right? All of a sudden, it just comes up and rips right through that level. It breaks the view app, and look at the volume here. Now, this is very high volume as it surges through vwap. And the way this candle closed at the top right there tells us that that was a circuit breaker hull. So, the stock went from like $5.50 all the way up to over $6 a share, halted on resumption, dip and rip. Now, shorts are covering into this extension up to seven, $7.58, $8.29 high. And just like that, you've got 25, 30 percent squeeze. That's a v web fade and then a break of eweb.
Imagine if you didn't have the Volume Weighted Average Price on your chart. Imagine that you, this all would have happened, and you would not have it on any understanding of the reason why we had such volatility at these levels. Let's put, look back at the chart. Check this out. We drop back down, we bounce off the view app here and come back up. All right? So, that right there was a dip off of the support of the Volume Weighted Average Price. And right here, we bounce off it again, and we can't hold the butt. We, we bounce off it, we, and then this becomes a bear flag and a no-brainer short for the fade and a really nice fade into the clothes.
So, being able to see the v app, the Volume Weighted Average Price, it does take some time with any indicator to kind of learn how to read it. But this is a fairly simple one to learn how to read because these levels are so clear. The stock is either above it or below it, or it's coming up to it for a fade off of it, or it's coming up to it for a possible break through it. So, these two examples are both perfect: double top fade off v web right here, uh, double top fade off view app, another fade off the view app. So, these become, I mean, once you start to see them, you can't unsee them.
So, I wanted to make this video fairly quick. Again, just a quick video of how to use Volume Weighted Average Price as an indicator for day trading. I hope this has been helpful. If it has, make sure you hit the thumbs up. I hope you subscribe the channel. You can always tune in and watch me during the live day trading morning show in the mornings, Monday through Friday. You can watch a ton of my old live trading archives. And I'll put a couple videos right here. I'll put one for my simplest day trading strategy right there, which you should check out. And I'll put another one right there if you want to keep watching some videos. All right, thanks as always for tuning in, and I hope to see you in the next episode.