All language subtitles for The Two Hour Trader Traders Thinktank-3-Explaining the Easy Money Setup

now moving on to the actual setup this

setup is called the pull back to vwap it

relies on an indicator known as volume

weighted average price this is an

extremely valuable tool because it is

something not only that pretty much every

retail trader is watching it is also

something that institutions are utilizing

to get involved with a stop the basic

premise is as you can see on the slide

here we are looking for price to show an

extension move away from vwap when it

pulls back into vwap we look for an entry

here we're going to be looking for an

entry signal now from there if we do see

that entry signal in this case we would be

buying calls or going long on whatever the

stock is or maybe we're trading the index

we would be going long at this point our

first target is going to be that prior

session high right so your your target

very first target is whatever the prior

session high was let's assume that this

trade is incorrect your stop is right

below that vwap level and so we'll look at

some real examples of this in just a

moment but this is the kind of schematic

of how the trade is actually going to work

again looking for that extension move away

from vwap pulls back into vwap we look for

our signal at vwap remember vwap is a

location once price is at our location we

still need some type of signal bar to tell

us okay yeah you want to be getting in

right here we'll be discussing that in

just a moment here but we look at price at

vwap that's our location once we get the

signal we buy calls or we get along in our

futures and we are selling them once price

tests that prior session high right stop

is right below whatever that structure is

so we talked a lot in the risk management

section about using structure keeping a

tight stop establishing risk to reward

looking at this low at vwap is how we

establish our risk point once price starts

to bounce versus vwap we are long our risk

point is down here okay now there will be

scenarios where it doesn't show immediate

follow-through right it doesn't actually

test that high you have a decision here to

make as a trader personally i like to keep

a trailing stop so that i'm not giving

back too much of my open profits on the

day that's a personal decision that you

have to make the the trade is not

technically incorrect until vwap is broken

to the downside and so this is a common

scenario where we'll see price bounce

slightly come and retest vwap and then

eventually test that session high on the

flip side of this we do have what is known

as basically a break of vwap for lack of a

better term here where price is pushing

below vwap this is a tradable scenario but

isn't it is not the trade that we are

talking about in this course it is not

part of the two-hour trader this is

something totally different yes price is

at vwap but this is not the pullback to

vwap trade so if you see price breaking

below vwap that is not your pullback to

vwap trade that is something totally

different and that is not a trade that

we're going to be talking about in this

course it is a more challenging trade it

is not something that we're going to be

discussing here remember the trade here

would look like this price would come back

to vwap you would see a signal bar here

and be attempting to trade the bounce

we're not going to be shorting when price

loses vwap now you can be short with this

trade the thing is is that you need that

extension again away from vwap and then

you need a bounce into vwap once price is

at vwap we look for that signal bar that

price is going to be rejecting vwap and

then we look for our short opportunity it

could be puts it could be short es or nq

and our first target again is the session

low right very similar pretty much the

exact same thing that we look for to the

long we look for to the short avoid this

vwap failure trade on both sides so if it

breaks above that's not your play we only

trade the pullback and part of the reason

is is that the pullback allows us a very

very tight stop means you're going to be

able to keep your risk extremely tight

extremely tight and that's extremely

important for a new trader that's

extremely important for any trader really

but it is especially important for

developing trader now moving on just

looking at some real examples here there

are going to be scenarios where we see

what i call static versus dynamic vwap now

early in the session is when you want to

be focusing on this trade generally

speaking going to be the first 90 minutes

of the trading session this is a great

strategy to be watching beyond 90 minutes

if you haven't taken a trade yet you

probably want to just call it a day and

wait until the next session static versus

dynamic just refers to the angle of vwap

if we are angled higher if vwap is

trending higher like you can see here

that's dynamic once it starts to flatten

out that is static and we'll see this

repeated in a bunch of different scenarios

and you'll notice it as well when you

start to use this strategy there will be

times where vwap is angled higher price

tends to respect it better in those

moments when it's dynamic then when it

starts to flatten out in the middle of the

day it's static there's no real interest

at vwap there now there are going to be

entire sessions when a stock is not in

play where vwap is static we don't want to

be trading the pullback to vwap strategy

on these particular days this particular

strategy is reserved for stocks in play

and the index meaning spire qqq or es and

nq if you're unfamiliar or you don't know

how to find stocks in play you need to be

in the traders think tank you need to have

access to the pre-market prep notes where

we're posting stocks in play every single

morning where this type of strategy is

going to work and so one of the parameters

that you need to be following for this

particular trade is making sure that the

stock is in play or that you are trading

spy qqq es or nq now how do you determine

if a stock is in play well the easiest

possible way is to be in the traders think

tank where we are telling you here are the

stocks in play that you can watch now if

you want to do it on your own you need to

be looking at relative volume if we have a

stock that is doing two to three x

relative volume meaning it's trading two

to three times what it does on a normal or

an average day that is a stock in play

generally speaking any stock with a big

catalyst that is that is hitting the news

feeds is going to be a stock in play now

looking at more examples here once again

we have static versus dynamic these two

these first two trading days here vwap is

static it's flat there's nothing

interesting happening in the stock on this

day you wouldn't really want to be trading

view up on this day yeah you can see this

little example right here where it

actually works for the balance play that's

great you can see that right here too but

it is a lower probability trade i want to

see you guys in the highest probability

trades and with that we want to ignore the

days where stocks or the index has a

static vwap mean again meaning it is

totally flat now look at it compared to

this day view app is totally dynamic it's

it is angled and pushing higher the entire

day now we don't really have a pullback

where we can get long with this particular

strategy but this is what we like to see

out of view app a note on this is that

general rule of thumb when using vwap is

if price is above vwap you want to be

focusing on longs if price is below vwap

you want to be focusing on shorts and

that's why that's another reason why the

pullback to view app trade is so valuable

now looking at a real life example here

right we can see price this is qqq so we

can see price selling off there's a bounce

here it doesn't really get to vwap so

that's not that's not going to be counted

as the pullback to view app trade it does

indeed sell off again and break the

session low but this this is the real

pullback to view app test that we look for

comes back test view app you have your

signal bar there we're going to be talking

about signal bars on the next slide here

but you have your signal bar right there

and so you're short you're either short

via nq or you're short via qqq puts again

what we're looking for is a move down into

session lows so you can see when price hit

those session lows here i experience a

bounce it's because the shorts are

starting to cover their positions right

you would be short until price makes a

session low or test the session low and

then you cover or you sell your puts at a

at a pretty large profit now where is your

stop on this particular trade the stop is

going to be up through the highs right

here right so let's say price pulls back

off of off of view app you're short and

then all of a sudden it bounces out of

nowhere if it breaks this high where this

circle is you take the stop on the trade

the trade is done it is no longer

something that you want to be holding if

you continue to hold past this point

hoping that it comes back you're no longer

trading you are gambling understand that

okay the edge in this trade is in this

sequence right here where price retests

vwap and then gives you a signal bar that

is where the edge is if you start to

ignore that you have no edge you're not

trading anymore you're just purely

gambling and so there are other places you

can gamble outside of the stock market i

would not recommend doing it here now what

does a signal bar look like so we know we

know the location at which we want price

it is vwap so we want to be observing

price at vwap that does not necessarily

mean that we're initiating a trade at vwap

we're simply watching price at vwap we're

going to see you see you see you see you

see you see you see see see