Sub VWAP Trap Trading Strategy

Jul 16, 2024

Sub VWAP Trap Trading Strategy

Introduction

  • Sub VWAP trap is a trading setup that causes big breakouts and catches traders by surprise.
  • Shorts are initially comfortable and in control, then a breakout happens, leading to a parabolic squeeze.
  • Though infrequent, a good example occurred today with the stock SCNI, which went up 125%.
  • The setup can be applied to various assets, not just stocks (also currency pairs, futures, etc.).
  • Example: $14,279 in profit today, contributing to $65,000 for the month.
  • Focus on teaching strategies when hitting big green P&Ls.

Topics Covered

  1. Definition of Sub VWAP Trap
  2. Pros & Cons of Trading It
  3. Tools Required
  4. Sub VWAP Trap Strategy Specifics
  5. Skills Needed to Trade It

Definition of VWAP (Volume Weighted Average Price)

  • Calculation: (High + Low + Close) / 3 and then multiplied by volume, divided by cumulative volume.
  • Plotted as a line showing equilibrium price of a stock.
  • Above VWAP = Bulls in control, Below VWAP = Bears in control.

Example: Stock SCNI

  • Breaking news caused a squeeze from $4.50 to about $8.50 in 15 mins.
  • Subsequent sessions stayed below VWAP indicating Bears in control.
  • Sub VWAP trap occurs after previous squeeze and decline below VWAP. Failed attempts to break above VWAP signal an impending breakout.
  • Example setup: Failed attempts, then a break above VWAP leading to a strong upward move.

Pros and Cons of the Strategy

  • Pros:

    • Large potential moves
    • Easy-to-understand entry

  • Cons:

    • Inherent weakness below VWAP
    • More rare
    • Short sellers may aggressively defend positions
    • Can occur at unexpected times
    • Possible violent reversals

Tools Required

  • Software for real-time volatility: e.g., Day Trade Dash scanners
  • Charts and VWAP indicator
  • Level II data: For real-time order book
  • Hotkeys: To buy/sell quickly
  • Analytical Software: e.g., TraderView

Sub VWAP Trap Strategy Steps

  1. Find a volatile stock: On the scanner.
  2. Check the news catalyst: Should be a reason for bullish move.
  3. Technical analysis: Examine multiple time frames (10 sec, 1-min, 5-min, daily).
  4. Look for entry: Use level II data and hotkeys for quick entry/exit.
  5. Monitor Level II data: Looking for significant buy/sell orders and order flow to confirm entry.

Skills Needed

  • Discipline: To cut losses quickly
  • Risk Management: Essential when trading below VWAP and during volatile conditions.
  • Technical Analysis: Ability to read various chart time frames and level II data.

Conclusion

  • Trading in the Warrior Trading Community: Invitation for a trial to trade over the shoulder for the next two weeks.
  • Reminder of the risks involved with trading and that results are not typical.

Disclaimer

  • Trading is risky and there is no guarantee of success.