The Key to Success has Been Underneath Your Nose the Entire Time
The key detail that every new trader seems to miss is that volume ultimately controls price movements because the presence of adequate volume validates the price movement. If a price movement fails to be validated by adequate volume , then there is going to be an equal an opposite reaction. There exists a variable that satisfies both quantitative and fundamental analysts. That is the Volume Weighted Average Price ( VWAP ) and it is complemented by the Volume Weighted Moving Average ( VWMA ). When you do not consider the weight of volume in price movements, you are at the mercy of manipulative, high volume whales that seek to sink Simple Moving Averages ( SMAs ) during times of low volume in the interest of accumulation of the asset.
VWAPs can be treated as the "true" price of an asset on any given resolution, but become less sensitive to change as you zoom out. These ever-shifting values can be treated as floors, in bullish times, and ceilings, during a bear market. You can always expect a "bounce" off of the VWAP in the opposite direction at least once as price attempts to cross over it. These resistance lines are useful to every audience, the soon-to-be long holders who would like to plan a decent entry, the short sellers trying to make a quick buck, and the swing traders who like to make money regardless of who controls the market. One should always keep in mind that price never strays too far from the VWAP before attempting to violently correct itself in the other direction.
There is a measure of movement around the VWAP , which we'll call volatility , and it masks the true price of the asset and its direction. By following the VWAP , you can see accurately whether the asset is going high or low. I'm using these customized bands to look for long entries (in the green or below) and short entries (in the red or above) to make short term profits to be accumulated in my spot balances. Ultimately, by building your position you can ensure a long-term profit but it doesn't mean too much if one simply never takes profit.
Longs can be slept on. Shorts must be monitored. Set a budget, craft a plan, and stick to it. Remember to remove your principal investment at some point to reduce your risk.
In a bull market, buy at the monthly VWAP (Purple Line) and in a bear market, sell there.
Happy Hunting!- Patch Hemlock
Proof of Institutional Use of VWAP: WATCH LIVE: GameStop hearing: Robinhood, Citadel and Reddit CEOs testify — 2/18/21 by CNBC Television on YouTube (Timestamp 4:55:34)
EDIT: For any would-be quants out there, I've developed an open-source pine script to act as a springboard for you
Reposted due to automoderation of youtube links
DECLARATION OF BIAS:
purchased GME at $13 and AMC at $4
doubled down after the crash at $50 and $6 respectively