The Importance of VWAP

How VWAP worked on SPY today

Good afternoon gang, welcome to the bloodbath part 2 from Friday’s sell off.

Not sure if you all know this or not but we use VWAP all the time in my morning Market Navigator service so I thought I’d break it down for you.

Simply put, VWAP starts for Volume Weighted Average Price or essentially the average price the entity you’re watching trades at.

For me, when the SPY price is above VWAP it’s bullish and if we drop below it’s more bearish. 

Or, “calls” when SPY is trading above VWAP and “puts” when SPY falls below.

Today we saw SPY pullback and BOUNCE right off the VWAP line, I did a live example in the screenshot below. As you can see I highlighted the yellow VWAP line showing the price action coming down to this level.

In the chat room I spoke about how this could become support if we hold or a key break DOWN if we go below.

Clearly this is something we have to watch and react to.

Well, shortly after SPY pulled back to VWAP which was around $515 at the time, price action on SPY spring boarded back up to $520s!

A perfect VWAP line bounce and a possible “call” trade idea from that level.

See the VWAP image 2 below showing what happened after the VWAP line bounce as price action headed into 12:30pm.

Since price action was already above the VWAP line, this kept SPY in a very nice bullish pattern. Had it broken below it could have triggered a possible sell off and put idea but remaining above kept SPY bullish in this example.

I use this indicator almost every day in Market Navigator and it’s just another example of a great tool you can learn from from the service.

If you’re looking for more details about my flagship options trading service then check it out right here.

Love to teach you more about options basics if you’re interested in learning.

Cheers to your success,

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