in today's episode I'm going to teach you how to trade the sub vwap trap this is a setup that I really love because when it occurs it catches a lot of Traders by surprise shorts feel like they're in the driver's seat they're all nice comfy and cozy Longs not really paying attention and all of a sudden you get this big breakout shorts are covering Longs are jumping in and next thing you know we're looking at a parabolic squeeze through the high of day and that's exactly what happened today now although I like this setup a lot it doesn't show up all that often so when we had a good example today I knew this is the time to make an episode for you guys and use this as a case study so this is the stock scni uh it's it's just a regular stock and by the way you could use this uh VAP breakout setup even if you're not trading stocks but you're trading currency pairs or futures or something like that it's a setup that is really based on this swing between the buyers and the sellers it's a sentiment shift and it can create a really violent move so this ended up going up 125% you can see right here that I locked up $1 4,279 72 of profit on it which now is putting me up just about $65,000 on the month and we still have two full weeks left so I'm in a pretty good position here and one of the things I said is that each day that I'm hitting like a big green p&l like this I'm going to teach a mini class based around the strategy that I was trading on that day so thank you guys for tuning in I hope you're hit the hitting the thumbs up and subscribing to the channel let's go ahead head and dive into today's class so I've got the live recording from scni so we'll go over that in a second but first we're going to go full screen here I'm going to back this up and we're going to talk about the sub vwap trap okay so these are the topics we're going to cover five topics going to or five this is the the I guess five subtopics we're going to run through them pretty quickly because I want to jam-pack this class with content for you guys so the definition of subv weap trap the pros and cons trading it tools required to trade this strategy I'm going to share with you my subv WAP strategy subwap trap strategy and then I'm going to tell you the skills that you need in order to start trading it on your own okay so first let's make sure we're all coming here with a level set even playing field let me give you the definition of volume weighted average price vwap this calculates the average price of a stock over the period of the day and it factors in not just the average price but the amount of volume that is traded so the way this calculation works is it takes um the high plus the low plus the close and then divide it by three and that gives you the average price for one period of time and then it multiplies that by the volume and then it divides it by the cumulative volume so the result is you get a plus otted line on your chart that is essentially showing you the equilibrium point of a stock factoring in the amount of shares that traded so it shows you the exact average price in other words if we know the exact average price and we see that the stock is trading above that price we can assume that the Bulls are in control and if it's trading below that price then the Bears are in control I have it plotted as an orange line right here on my charts in the past I had it as a dotted line which was a little easier to see but um right now it's plotted as a solid line so that orange line that you see right there in the background is the volume weighted average price so in the case of this stock it had breaking news right at 7 a.m. and that resulted in the stock squeezing from 450 up to about 850 in it was like 15 minutes it was basically straight up and it of course at that time was trading well above the volume average price but then we got a swing back down some sellers came in and for the rest of this sort of morning session we were trading below volume weighted average price and so it seemed at that time like who was in control the Bears it wasn't the Bulls this stock was just a little too weak for whatever reason not exactly sure why um it can be kind of difficult to know the exact reason why one stock you know has a great headline and then continues to stay above vwap all day long and just grind higher and higher and higher whereas another one with what is seemingly good news pops up and then flushes and is below vwap for the rest of the day but one of the variables is whether or not the company is selling shares so if the company is selling shares then that's going to drive the price down if there's insiders selling shares that can also Drive the price down so you know that's going to vary from company to company based on the circumstances of who's invested in that company what the balance sheet of that company looks like so on and so forth so for whatever reason today uh scni ended up coming down below vwap and then right here is where we got the vwap Trap so the sub vwap trap occurs when the stock is trading below vwap and you typically the stock needs to have previously squeezed up at least 10% but now it's declined and it's pulled back below volume weight average price and usually we like to see that it's failed previous attempts to break over vwap so the reason we like that I'll show you on the on the Whiteboard and we're going to draw this as the vwap line here so that means the price would have squeezed up and then I'll just keep it in green come back down tried to get back above it pulled back tried to get back above it pulled back and then right here comes back up for one more attempt and then this is where we break sometimes we'll pull back and we'll retest and then if we hold We're Off to the Races almost always making a new high relative to uh the previous high of day so the thing with volume weight average price is that when we're below it and the price comes up to it a lot of times it serves as resistance so price can't break it shorts are adding to their position here and Traders who bought the dip down here are taking profit right here this is reversal trading when you're buying really like way down here and taking profit here but other shorts are going to be shorting here and maybe not even adding here but looking for kind of the all day fade back down which is not impossible you could certainly see that kind of move and we have seen it um on a number of stocks over the years where you have the pop and then it can't get back over vwap and it just Fades all day so it's definitely a strategy for short sellers to short that fade with a stop just above vwap so then when the price suddenly breaks vwap the momentum suddenly shifts back into the hands of the Bulls shorts begin covering Bulls are buying there's an imbalance to the buy side and a squeeze begins and that's exactly what we saw today so the pros of this strategy are fairly straightforward when it works the moves can be really big as we saw here from uh 550 all the way up to 9 a share that's a fantastic move we can possibly get um parabolic squeezes through new high of day when this works really well and the entry is fairly easy to understand even for beginners which makes this a really appealing strategy however there's also some cons the cons of this strategy is that there's inherent weakness because the stock already broke below vwap right possible causes could include as I mentioned earlier the company selling shares investors exercising warrants and selling shares insiders dumping shares investors dumping shares selling selling selling selling selling something is creating an imbalance to the sell side yes the stock popped up early made a nice big squeeze but now it just feels like there's unrelenting selling selling selling and just driving the price back down so when that's the case it's not impossible you could get a subv app trap but if the selling is really strong doesn't usually happen which makes this setup a little bit more rare shorts may be more aggressive to try to hold the stock back if they are in heavy which means if they take a big position while the price is dropping well I'll do I'll show this on my chart here so let's say shorts um you know a short takes a really big position on this stock right in this area they're shorting the break of vwap and then they're adding on the pops and they're looking for this thing to come all the way back down to before so when it starts to pop back up here they might put a 50,000 share sell order on the ask to try to scare off any buyers well if buyers buy that up then we get the move higher but you'll have sellers defending this level defending means they're putting their orders up against that level and they're they're hoping that they're creating a wall that does not break but of course if that wall does break suddenly you get that flip in sentiment and that's when things can get pretty crazy so you know this is a setup that has a bit more tug-of-war it's a bit more of a battle between Longs and shorts um and the other thing that's tricky about this is that breakouts can occur at unusual times like lunchtime or in the afternoon it's kind it usually is sort of unexpected and that's kind of part of what makes this setup work so well is that there's a bit of an element of surprise just all of a sudden boom this thing is taking off and and it's like whoa what's going on and Traders are kind of scrambling shorts are scrambling to cover Longs are scrambling to get in and when this setup works really well during regular Market hours the break of vwap results in a halt up so it squeezes and halts up because the stock goes up more than 10% in less than five minutes it then is paused for five minutes on a volatility trading pause resumes and often dips and rips higher sometimes even into a second Hall and this is where shorts hardly have a chance to unwind the position and this this is a big thing that they talk about is that now the stock can start just skipping levels next thing you know is just pushing up 50 cents a dollar a share at a time because there's no liquidity the interesting thing about the market is that there'll be a tremendous amount of liquidity right around the current trading price so when we have sort of like um let's see like this area right here we have this area right here there's a lot of liquidity a lot of volume in this area but then when it starts to pull away there won't be as many people lined up to sell in these areas because well if this thing breaks these levels it could make a big move so we end up having sort of like if we looked at the distribution of orders not a lot of orders not a lot of orders and then more and more and more and more and then fewer and fewer and fewer so as long as a stock stays within this range it's going to be very congested and and it's going to move slowly but as soon as it breaks out it'll move fast to the upside or fast to the downside so we're looking to trade breakouts especially as momentum Traders and this can be a little tricky because the entry initially is while the stock is still in a bit of a period of consolidation so the tools required to trade this strategy I mean for the most part it's the same as any other strategy you need to have some software for finding volatility in real time so I'm using the day trade Dash scanners as you guys know you can see them that that's what you're seeing in the background here whenever I'm pulling my charts up so I've got my scan scaners right here and of course um scni is sitting on the scan right now up 41% uh but earlier as it was squeezing higher it was on this scanner as well and it was very obvious that this is a stock to pay close attention to so you need to have your scanners you're going to need to have charts of course you need to be able to plot where the volume weight price average the vwap is on uh the actual chart um and you're going to need a platform that's going to give you access to level two data level two data uh and watching the level two is actually what gave me indication to take my first trade for the break of vwap or the sub vwap trap on scni and you'll see that in a second having hot Keys even simple hotkeys just to buy and sell quickly it's going to make it a little bit easier um so for me I have a hotkey that is shift so I press shift and then I press the the number one right here shift plus one right here and that's going to send a Buy order to buy at the ask plus 15 cents it gives an offset so as something is moving up quickly I can jump in now you can script that for as many shares as you're comfortable with depending on what your risk tolerance is a lot of people will set it for like a th000 and then shift two is 2,000 3 is 3,000 four is 4,000 5 is 5,000 Etc you go all the way up to 10,000 if you want whatever you want um and then I have another button that is um contrl so contrl uh Z and control Z is sell bid minus 15 and it's for full position so selling my full position at the bid minus 15 cents then I have another key that's control K the K button kind of in this area and control L and this is for selling at the ask uh so selling the position instead of the bid it's just ask price to sell into strength so having even just those four simple hot Keys plus control key you up here to cancel any open orders that's going to get you um the ability to move in and out of these trades pretty quickly which is what you're going to want when you've got a fast moving stock and of course as always it's great to have software that you can use to review your analytics and I use Trader viiew for that and I don't have any affiliate relationship with them so use them if you want or don't use them if you don't want it's up to you okay so now let's talk about my subv WAP trap strategy so Step One is finding a stock that's volatile all right so step one find the stock on the scanner oops it's okay we'll just go like this um so step one find the stock on the scanner step two is to figure out what the news catalyst is now a news catalyst is actually important for the vwap sub vwap trap because it gives the reason for the stock to change from being bearish to bullish so this did have news out this morning um we had a headline here which was great so we had a catalyst that gave us step two step three I perform my technical analysis which is based on reading Candlestick charts so if you haven't watched my full length episode on how to read Candlestick charts from zero make sure you check that out I'll put a link to that at the end of this episode um so when I'm talking about technical analysis I check the following time frames you'll see the 10sec the 1 minute the 5 minute and the daily chart right down here so I have four time frames all for the same stock I start with the largest time frame first and I looked at see if there's any nearby resistance and in fact we did have resistance right here at the 200 moving average but it was up around like 850 so it was a resistance level that came into play but it wasn't an issue immediately we also had a day back here where the stock had 30 million shares of volume popped up and sold off all day long so that made me a little bit nervous on this but it was able to show a good amount of strength but it's not totally surprising that today sort of is matching that both high volume red days you know as we're getting further into the trading session then from there I look at the 5-minute chart and what the five- minute chart showed me on scni was that we had made this initial move up right here which I knew because I had already traded that and then we got this pullback and we were consolidating under vwap now at the time uh I didn't see anything really more to look at so I didn't jump into focusing on the one minute chart or the 10-second chart I would really only do that if I was at a point where I was actually considering taking the trade but I wasn't considering taking a trade uh at the moment that you know I sort of first was looking at this uh but someone in the chat room um Alexandra she mentioned um take a look at snci for a dip trade and I pulled it up and when I first pulled it up I think it was probably around this area here and I said well I don't know it's a little tricky it has pulled back a good bit it's definitely below vwap I don't know and my thinking at that time was that there were a couple of other stocks that were moving and that were obvious you could see we have other stocks here that are up more than scni so I was sort of focusing on those and I got some trades on a couple of them crkn dats ivp so and by the way ivp was straight off the watch list from uh yesterday so that was a nice trade I didn't make as much on it as I guess I could have but nonetheless um had a couple trades here but then as we started getting a little closer to the open I started recognizing that all of the leaders were pulling back and they didn't really look very good and I kind of flipped back over to scni which was on a side chart and it was sort of right in this area right here and I kind of what this is what I noticed it's basing when I say it's basing I mean it's holding support it's holding this low so in this area we were kind of making new lows making new lows making new lows and then we kind of stopped making new lows and in fact we made a little pop up and so that little teeny pop up there got me kind of thinking that we're starting to base out we're still below volume weight average price but we're starting to base out so what I decided to do here was to look for an entry so step four once I've done my technical analysis and I begin to see a setup I look for an entry and this is where I'm pulling up my level two so we're going to go ahead and jump into uh the screen here so this is going to show you my actual trading platform right here this is from this morning and so I have scni up on this level two window it's up 40% here about 4.2 million shares of volume and right at this moment there's a spread of 14 cents 560 by 574 575 but right here right in that moment the bid tightened up so the bid tightened up there a little bit and now there's a little green on the tape so at this point I pull up the chart and I'm starting to think we might have something to work with so what I end up doing is I type my uh order for 1,000 shares and the price is 5.85 and I'm kind of just looking at this level here looking at the one minute chart 10sec chart's not showing a lot because it's a little bit more thinly traded but I'm just watching the time in sales and watch right there when I saw that burst of order go through I said I'm jumping in that's it I'm jumping in right here so now I'm in at 85 my order is right there so I'm minute 85 and now you've got 75 by 93 so all of a sudden we're starting to kind of perk up now and when we look at the uh the F minute chart and the one minute chart you can see that the the sentiment is starting to shift a little bit right all of a sudden we have this five minute candle right and the one minute starting to push up here towards six now the second I got in the way I trade I follow a philosophy of breakout or bailout which means if I time my entries correctly I I should have pretty much immediate resolution if I'm correct at the entry point it'll work right away and if I get in and it kind of stalls and nothing happens for a few minutes that's when I'm thinking I might have timed this wrong you know maybe I've got the right idea but it's not going to work and the the biggest concern that I had with this stock at the time was that it was it was not I I was concerned it was not quite obvious enough so if we look at the scan and um it was up 41% here but it was in let's see 1 2 3 4 5 6th Place it was in sixth place oh you can't see because of my video let me just hide that video so it was in sixth place here um in terms of um its position on the scan I usually like to trade a stock that's in like first or second place but I'd already traded dats got some profit on it these ones were a little too cheap DJ djt I didn't want to trade cuz I knew it'd be too risky mirror was too cheap and so this kind of left me with this was the most obvious one for me but I didn't know if other people would feel that way so when I first jump in it pops up to 93 but there's a little bit of a Moment of Truth here and so I ended up taking a little profit off the table and then when it goes up to six it goes up to 606 610 and it's it's now going to give us that kind of uh push higher and this is something I noticed right here a 20,000 share buyer at 615 so see that buyer right there at 615 I had just taken the last off the table at $6.7 before that buyer came up but on the one hand I looked at that buyer and I thought this is bullish someone's putting out a buy order to buy 21,000 shares but on the other hand I thought maybe this is the Trap maybe this is not going to be a subv appap trap maybe this is going to be a bull trap and they're putting that order there to try to get bullish Traders like me to buy only for them to dump it so I was a little bit unsure about what was going to happen here and we were coming up to the volume weight average price which is right around 650 so we end up that buyer is right there at 15 you see that buyer on the level two there at 15 so we end up pushing higher I end up moving an order up to 659 and I'm starting starting to get kind of situated now in hindsight I had a great entry on this and I sold because well essentially I took my base hit now I'm just still watching the level two here um okay so let me just comment for one second on base hit trading I'm a big Advocate um of taking base hits and here's the reason if you get in a trade and it goes up 10 15 if you pay yourself then you've got a winner locked up and the thing is it's a lot easier to predict when a stock will go up 15 105 cents than 50 cents to a dollar a share so if every time it goes up 105 cents you take profit you're going to have much higher accuracy than traders who don't take anything off the table until they're up at least 50 cents a share now traders who wait till L up 50 cents a share will have bigger average winners but lower accuracy lower accuracy hurts self-confidence at least for me I think it does for other Traders as well so I end up being in the sort of mindset of taking base hits locking them up and then walking away now here's the problem that buy order got pulled it didn't fill you see the order flow here no one filled 20,000 shares to the sell side that buy order just disappeared so that's when I started getting a little bit I was a I I was a little skeptical about what was going on there little shady little something was a little funny but you know it is kind of holding up and it's moving towards vwap so I'm like you know we're moving in the right direction so it pushes up here to 35 it goes up to 49 I take a trade right up here and now I'm trying to take that break through the high so now we've got 680 698 and I'm looking for that squeeze up to seven so now you see all of a sudden I've scaled into a bigger position 10,000 shares and I'm looking for that squeeze on this up through what well at that time my target was a retest to the highest day so if we look at the one minute right here I was looking for a push straight up to $8 but this is what ended up happening it squeezed up to about 720 and then it drops down then it comes back up to 720 and it drops down comes back up to 720 and it drops down so right here at 720 we had clear resistance but we were holding support more or less at volume weight average price and I think again I'm little so I noticed that this stock has warrants at $6.50 a share and so that made me start to wonder if um we were dealing with an issue here um with insiders selling these or with the comp with with people selling these warrants so I'm not sure we may see news later in the day to that effect um we may not but nonetheless so I end up taking that trade uh I'm in nice shape here but it ends up dropping back back down so I stop out it pulls back for a little bit and then we come back up so we retest vwap and then we're looking for that curl back up and through this area really I just kept trading it and buying dips and taking breakouts but look right here um we just had that 20,000 share buyer back again right so back again there at 675 and and this is why I was just like you know is this thing going to work so now we come up here to $7 I'm adding for the break of seven and I'm like let's go finally we get the break of seven so now once again I'm back in with 10,000 shares again and we've got 685 on uh as my entry we're showing 709 by 711 and this is what I finally wanted I was like yes let's pull away here let's get that squeeze up to 758 or higher but you know what happened once again it kind of stalled out it ends up pulling back so then when it finally comes back up at the open naturally I was a little cautious about it it was not it was feeling like not trustworthy but then finally it ends up ripping and so you can see here I just end up taking small trades as it pushes higher but this is a stock that um there was definitely some tug-of-war going on with it I mean like it was moving higher and I got some nice trades in here and worked my way up to you know 14,000 on the day but it just it did even in spite of the break of vwap it just had this sort of inherent weakness in it and actually here let's back this up [Music] um so let's watch this so right here snci is squeezing up there's 84 on the offer so I end up taking some profit and then watch this flush I think these flushes were happening cuz there were there was someone inside I don't know just pressing the cell button watch this whoa dollar a share drop a dollar a share in one candle like what is going on so that ended up being kind of the problem and I think again this highlights some of the inherent risks with trading a stock that has previously broken below V app it just shows that clearly there's a bit of a struggle going on you end up on the one minute having um that pattern that that I often call sort of the the devil horns right there those two top tals a nasty rejection and then further selling so I am concerned that we may see some news out later today of exercising warrants and the thing is they they'll they'll put out the news that they exercise during the day and then that goes back and explains the price action but I could be wrong it could just be I don't know something else that's causing the selling I I don't know for sure but it's just there's obviously a lot of selling on this one so you know I think for for me at the end of the day I've got to review my metrics I've got to analyze them carefully and to get a better understanding of the skills you need to trade this strategy essentially it's not a lot different from trading in general the biggest thing is you need the discipline to cut your losses quickly when you're trading something that's against the trend and when you're trading something that is is against vwap below vwap that's got more risk and when you're trading something that's showing you some of these big jack knife candles these big reversals you know that can result in some big losses so you got to be a little bit careful not the cleanest stock that I've ever traded but locking up some nice profit today and I'm going to try to do it again tomorrow and hey those of you guys that want to join me I will put a link right here I'll pin it to the top of the description and in the comments for a two-e trial so you can trade over my shoulder for the next two weeks you can use the software the charts the scanners you'll have access to the chat room I broadcast and our Newsfeed and you can see what it's like to be a member of the warrior trading Community we like to think that we are the number one home for momentum Traders so come on and join us and thank you as always for tuning in I hope you hit that thumbs up I want to remind you as always in case I had already said it trading is risky my results are not typical and there's no guarantee you'll find success whether you trade with me or you learn on your own so please manage your risk take it slow and I'll see you for the next episode here tomorrow hopefully we have another really solid day tomorrow morning all right I'll see you guys tomorrow