[0:00]Why it is so hard to make consistent money day trading or scalping? Because you're probably have the wrong indicators, and you're using them in a wrong way. I'm fixing this problem today, and you'll discover a consistent way to trade and read the market, just by using VWAP indicator and the Heikin Ashi candles. Before we start, if you want to show your support, please drop a like to help us with the YouTube algorithm and turn on the bell, so you don't miss when new videos are released. Professionals rely on two important factors when making trading decisions: price and volume. These two elements tell you everything you need to know about price and where it may be headed in the future. So, it makes sense that you must develop a powerful strategy that is based on price and volume. With the scalping strategy, I keep my charts relatively clean with a minimal number of indicators displayed. Here's what I have on my charts: price action in the form of the Heikin Ashi candlesticks, volume weighted average price indicator, and optional one momentum indicator to find periods of expansion and contraction and to identify divergences. Heikin Ashi are visually appealing because you can easily filter the price of the present move of the overall trend and provides a clearer visual representation of the trend. Heikin Ashi candlesticks are different from normal candlesticks. These price bars are average bars and it doesn't reflect the exact open, high, low, and closes for that period like a normal candlestick. The various bullish and bearish reversal patterns consisting of one to three candlesticks are not found here, there are no hammers or engulfing candles. Rather, these candlesticks can be used to identify potential reversal points and, more important, trending periods. These charts are filtered from noise, thus making the short-term trend easier to observe. So, these charts will help you to view trends and identify potential reversals. The Heikin Ashi candles are totally different in appearance when a strong trending move is underway relative to pullbacks. Upward trending moves typically have long upward candles with very little or no lower shadows. When a strong uptrend is underway and the buying is aggressive, the lower shadows will typically disappear. The same concepts apply to downtrends, except strong downtrending moves will be composed of Heikin Ashi price bars with little or no upper shadows. The bars will also typically be long and moving lower. During pullbacks or weak trending moves, you'll see a lot of bars with lower and upper shadows. This doesn't necessarily indicate a reversal, but it does mean the trend is in a corrective phase or slowing. So typically, during strong trending moves you'll see strong up bars with no lower shadows, and strong down bars with no upper shadows for a downtrend. And just because one up candle or a couple of candles with upper shadows appear during a downtrend, doesn't mean the trend is reversing, it may just be pausing. The same is true for uptrends. Volume Weighted Average Price, or VWAP, is probably the most important technical indicator for day traders and scalpers. Essentially, VWAP is a moving average that takes into account the volume of the shares being traded at any price. Other moving averages are calculated based only on the price of the stock on the chart, but VWAP also considers the number of shares in that stock that are being traded on every price. Basically, VWAP is an indicator of who is in control of the price action, the buyers or the sellers. When a stock is traded above the VWAP, it means that the buyers are in overall control of the price and there is a buying demand on the stock. When a stock breaks below the VWAP, sellers are gaining control over the price action. VWAP is often used to measure the trading performance of institutional traders. Professional traders who work for investment banks or hedge funds and need to trade large number of shares each day cannot enter or exit the market just by one single order, the market is not liquid enough. Therefore, they need to process their orders slowly during the day. After buying or selling a large position in a stock during the day, institutional traders compare their price to VWAP values. A buy order executed below VWAP is considered a good fill for them because the stock was bought at a below average price, meaning that the trader has bought their large position at a relatively discounted price compared to the market. Conversely, a sell order executed above the VWAP would be considered a good fill because it was sold at an above average price. This is how VWAP is used by institutional traders to identify good entry and exit points. Institutional traders, therefore, try to buy below or as close to VWAP as possible. Conversely, when a professional trader has to get rid of a large position, they try to sell at the VWAP or higher. Day traders who know this may benefit from this market activity. If there is a large institutional trader aiming to buy a significant position, the price will break over the VWAP and move higher. This is a good opportunity for us day traders to go long. Conversely, if there are big players wanting to get rid of their shares, they start selling their shares at the VWAP. The price will reject the VWAP and start to move down. This is an excellent short selling opportunity for day traders. If there is no interest in the stock from market makers or institutions, the price may trade sideways near VWAP, and you will want to stay away from that price action. I hope you see how trading based on VWAP will keep you on the right side of the trade. Well-informed traders know that VWAP is a must-have indicator. However, it takes an experienced trader to understand when price is overbought or oversold in relation to VWAP. This skill is essential to finding and trading the best opportunities. The key aspect of the VWAP indicator are its bands based on standard deviation.
[6:26]These bands allow you to identify undervalued and overvalued price zones. By studying how the price interacts with the VWAP bands, you can begin to discover the price action characteristics of that market. And I prefer to add not just one set of bands, but two, one VWAP with standard deviation bands of one and the second one with standard deviation of two. This way, you get multiple levels of dynamic support or resistance. Strong buying pressure above VWAP, or strong selling pressure below it, is an indication that market participants are seeking to push price to a new area of value. When this type of aggressive buying (or selling) occurs, it usually leads to significant moves in the market. The beauty of the VWAP bands is that they reveal these hidden areas of support and resistance, allowing you to see value opportunities like the pros. The ability to see these hidden levels allows you to anticipate price movement at important action zones. In essence, as price trades away from VWAP, the blue center line, the bands above and below it become targets. Likewise, as price reverses from the outer bands, the probability of reaching VWAP increases significantly. So, how do you actually take signals using the VWAP and Heikin Ashi? Well, when analyzing the market, you must look for specific signals to determine the best point of entry and exit. Ideally, the more signals appear in a specific price point, the stronger it is, in the context of trading. We call this a confluence. To be able to spot confluences in a price chart, you first need to have a decent grasp on basic technical analysis concepts, and this means identifying and plotting support and resistance levels. Confluences appear in the chart as the merging of two or more elements in a certain price level. Points where a support or resistance level aligns with VWAP bands, these are key areas to buy or sell a position. In this example, you can clearly see how the price shifted to a downtrend channel. However, the downtrend channel ended when the price hit a major support level here. At this level, we also had VWAP lower bands, revealing that sellers are losing steam, and buyers are starting to get aggressive. Once we identify the possible confluence point, we just need to analyze price action using Heikin Ashi candles. Green candles forming after the price rejected the confluence area means a shift in momentum. This area turned out to be a great support confluence point and the strong level to consider an entry position. Stop loss always goes below the support level, below the confluence area. And you take profit as the price reaches the VWAP bands, or surely closing a part of your position. Here the price met a major resistance level. At this area, we also had the VWAP upper bands. So we found our possible resistance confluence area. Now we just need to read price action using Heikin Ashi. Observe how the price rejected our area with several red candles, and that's a good entry signal. We then had a strong downtrend shown by this consecutive red candlesticks. Say that the bearish price action has no upper candlewicks. This indicates that the declining momentum is strong, stop loss above the resistance level and profit targets at the VWAP bands, depending on recent price action. In this chart we identified at least three points that indicate a support level. Then, we also found this rising trend line. And of course, the VWAP bands, as expected, price form support around our confluence area. After this, we identified the first green candlestick with no shadows. This is a good signal that a strong bullish trend might be starting. The advantage of this strategy is that you combine price and volume, and at the same time, you eliminate noise by using Heikin Ashi. And you also rely on both static and dynamic support and resistance levels. Powerful stuff.
[11:46]If things are unclear or you find a setup and you don't know if the confluence area is worth trading, you can add a momentum oscillator for confirmation. In this example, after this consolidation above the support level, price made a strong breakout rally and found resistance right here. The VWAP bands are also positioned in this area. On top of that, we can clearly spot a bearish divergence pattern on the RSI that had formed when the price tolled at the static resistance and the VWAP bands resistance. This price level represented a high probability resistance confluence point and the strong level to consider a short position. In this example, these are the things you should notice right away. This support level, where price tested the area on previous occasions, and the level held. Then notice that there are the VWAP bands as well, providing another confluence factor to that support level. And the RSI showed a bullish divergence, meaning price action and the RSI are no longer showing the same momentum. A bullish divergence is signaled when the RSI indicator has a higher low that correlates to lower lows in the price action. This showed increasing bullish momentum. As Heikin Ashi changed colors from red to green, we enter a long trade with a stop loss below the confluence area. Here, notice the support level that was broken and price was heading up, so this was a potential support turned resistance level. The confluence trading factor comes into play here, when you notice that the VWAP bands align right here in this area. And for momentum confirmation, you look at the MACD. A bearish divergence is present with a lower high on the MACD that correlates to higher highs in the price action. This means decreasing momentum and a possible reversal in the uptrend. This is confluence trading with price action and momentum confirmation.
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