Bold? You get to decide, not financial advice.
If you’ve been in the trading game for a while, you may have heard of “pivot points” and “VWAP.” The former sounds like the title for an incredibly lame college textbook, while the other could be a trendy new dance sequence.
I asked our analyst Amol if he would be willing to demonstrate a proper vee-whap, but he declined.
While not as entertaining, we’ll have you staring at charts for a few extra hours a day in no time with this quick foray into two of our favorite technical indicators.
Volume Weighted Average Price (VWAP)
A trading benchmark used by traders that gives the average price a security has traded at throughout the day, based on both volume and price. It is important because it provides traders with insight into both the trend and value of a security. (Investopedia)
VWAP calculates the sum of a given asset’s price multiplied by volume, divided by total volume.
A technical analysis indicator used to determine the overall trend of the market over different time frames. On the subsequent day, trading above the pivot point is thought to indicate ongoing bullish sentiment, while trading below the pivot point indicates bearish sentiment.
Pivot points don’t use percentages and are based on fixed numbers: the high, low, and close of the prior day. (Investopedia)
The strategy we’re serving up today is a VWAP-Pivot combo as if these dance moves can’t sound any more complicated.
This strategy helps us identify suitable positions in both directions, and we’ll demonstrate that with two successful trades.
Check out the price action in the TradingView chart below. We’ve turned on the Pivots indicator. Now what you see are a bunch of horizontal lines, kind of like a Fibonacci retracement tool.
Tangent about spirals
Unsure what a Fibonacci retracement is? Don’t worry about it, for now. It’s a rabbit hole we’ll venture down in a future piece. Drop us a line at [email protected] if there’s something you want us to unpack.
If you need a refresher on adding an indicator to a chart in TradingView, start here, then quickly run back before forgetting we exist. As a fellow goldfish brain, I understand the struggle. However, if you want to go deep, check out this Trading Basics course we cooked up in-house.
Back to pivots:
Once you’ve added the pivots indicator, click on the indicator settings → Inputs → Check “Show historical pivots,” then return to the chart.
This view helps us identify what the pivots were on a day-to-day basis. Remember, when you turn on the pivots on an hourly time frame, the pivot points change weekly. On the 15-minute time frame, pivots change daily.
This analysis focuses on the hourly, so switch your chart to that time frame if you’re following along.
When the price broke above the R1, which in pivot-speak means “the first resistance level,” you want the price to stay above that level. If the price doesn’t stay above that level, it’s more likely to gravitate back to the pivot. However, if the price fails to reclaim that resistance level and turn it into support, that increases the chances of a breakdown even more.
The price spent eight to 10 hours above the S1, but then it broke below that level. Here is where our duel-indicator strategy comes in.
I’ll draw your attention to the white line that looks like a moving average. That is the Volume Weighted Average Price or VWAP.
Once the price starts hovering below the VWAP, while also rolling below the R1, you have a confluence of two separate indicators indicating price weakness.
I would have seen that as an option to open a short or close a long position. Say we missed out on that trade. Here’s a screenshot of an idea we shared with the Discord server.
According to pivot points, the setup was best suited for a long position because the S1, or the first support level, was tested.
The second trade I’ll share is for ChainLink (LINK).
Price broke below the weekly pivot, followed by a failed retest, meaning that level became the new local resistance. Not only that, but we can also track several failed attempts to close above the VWAP until a candle ultimately closes below it. I would have seen that as the next shorting idea, with a take-profit target on the S1.
I didn’t take that trade, as I was waiting for a test of the S1 to open a long position.
I hope this strategy has helped you in identifying a style that works for you. You don’t need complex indicators to provide buy or sell signals. You don’t need 15 different indicators to be a successful trader.
Alpha Trades is partnering with one of our community’s own to bring you the Shepherd indicator. I’m excited to roll it out in September. It is the one indicator that has simplified the way I look at price action, which goes beyond buy/ sell signals. If you have some basic understanding of how technicals work, you’ll enjoy the Shepherd. This absolute unit of an indicator combines the best elements of several doodads often used by traders.
Happy trading, and keep your stops tight.
Is there something you’d like us to cover? Please leave us a message on the Discord server.
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