Video Transcript:
Hello everyone. It’s Dale here. In this video, I’m going to show you a couple of simple VWAP setups. I’m going to show you a setup that you can use when the market is going sideways and I’m going to show you a setup that you use when the market is trending. And as a bonus, I will show you how you can add a volume profile to those setups to improve their win rate even more. So, let’s get to it. VWAP setup number one. It has a very original name: rotation setup. It’s called rotation setup because I use it when there is a rotation. So, the first thing with this setup is to identify a rotation. As I said, you do that by looking at the first deviations. You want to see deviations going sideways. So this grey line is the first deviation, and it moves sideways. This one too. So this is a rotation, right? We identified a rotation. Now it gets real simple. You go short when the price hits this first deviation and you go long when the price hits this deviation. This lower deviation is a support and this one is a resistance. The price is moving between those two, between this support and this resistance. So let me delete that. If you look at the picture, the price hit the first deviation, so we go long. Again in here, another long. Another long from here. Then from this deviation, there’s a short from this place, short from this place. All right. So that’s basically how you trade this rotation setup. Take profit is the VWAP. It doesn’t need to be, but in my experience, it’s a pretty solid place to take your profit. All right, so the VWAP line, the yellow line, works as a magnet and it is a nice place to take your profits.
Now, another example of this rotation setup. First, have a look at the first deviations. This one and this one. They are moving sideways. They’re moving horizontally, which means that the market is calm and there is a rotation. So we can start looking for the rotation setup. This deviation line is a support. This one is a resistance. So whenever the price hits the resistance or the support, you can enter a trade. All right. Short from here, short from here, short from here, another touch here, another one, another one. If the price made it, for example, to this place, it would be a long. It is as simple as that. So that’s the rotation setup.
The second setup also has a very original name. It’s called the trend setup because you trade it when there is a trend. What I’m going to show you is a short-trade scenario. All right. So I’m going to be talking about shorts. The first thing you want to do is identify a trend. Again, it is best to identify a trend using the first deviations. In this case, it’s actually pretty visible if you look at the candles, right? The price is just moving downwards. No way this was a rotation. But anyway, let’s stick to the rules. First deviation heading downwards. This is a strong downtrend. So we can start looking for the trend setup. What we want to see is the price moving below the first deviation. Like in here, the price is moving below it, and what we are waiting for is a pullback to the first deviation. In here the price made the pullback, touched the first deviation. What you want to do is enter a short from this place to participate in the downtrend. The price is moving downwards and the logic behind this setup is that you want to participate in a downtrend. You’re looking for a place to do that. The best place is to wait for a pullback and enter a short from the place where the price hit the first deviation. That’s it. It’s as simple as that.
Another example of the same thing. First deviation is heading downwards, so there’s a trend a pretty clear downtrend. The price is moving below the first deviation. That’s what you want to see. What you are waiting for is this pullback. Price makes a pullback to the first deviation. When it hits it, you go short. You go in the direction of the trend. You want to participate in the trend. Pretty simple, isn’t it?
Now, let me briefly go through the trend-setup long-trade scenario. It’s basically the same, only reversed, so I’ll go through it quickly. First thing you want to do is identify a trend. Obviously, you want to identify an uptrend. If you look at this picture, the first deviation is moving vertically, moving upwards. This tells you that the price and volumes are shifting upwards. You want to see the price above the first deviation like in here. What you’re waiting for is a pullback to the first deviation. When the price hits the first deviation like in here, you enter a long. You enter in the direction of the trend because you want to participate in that trend. So that’s the trend setup.
One more picture of that. First deviation moving vertically, moving upwards. This tells you that there is an uptrend and you want to see the price moving above it. It’s above the first deviation the whole time actually. So you just need to wait for the pullbacks. First pullback in here you go long. Another one here another long. In this place the price missed the entry, so no trade from there. Another touch. Another one. Another one. In all cases it’s not always that easy or simple. This is just a nice trade scenario where there was a strong uptrend.
Now I’ll do just a little recap of the setups. I know they are pretty simple, but I think it’s important to do as many recaps as possible. The first setup, rotation setup. What you want to see is a rotation deviations moving sideways and whenever the price hits those deviations you want to enter a trade. This is a support; you want to go long from there. This one is a resistance; you want to go short from there. VWAP is the magnet. VWAP is the take-profit. Well, it doesn’t need to be the take-profit. I don’t really like to set a hard rule to that, but it is a good idea to place your take-profit at the VWAP.
Now, trend setup. You use this one when there is a trend. In this picture, there’s a downtrend because the first deviation is moving downwards. What we are waiting for is a pullback. When the price touches the VWAP, you enter a trade. You enter a short in the direction of the overall trend. Oh, this brings me to the next part: favourite combination VWAP plus volume profile.
Let’s get to the picture in here. In this blue rectangle, there is an area where heavy volumes got accumulated. In this area, the heaviest volume peak was in here. So based on what I told you, this should work as a strong support or resistance zone this price level. So this is what the volume profile tells us.
Now let’s have a look at the VWAP. This is a daily chart and this is a yearly VWAP. Let’s have a look at the first deviation because in here the first deviation is going downwards, which means downtrend. And when there is a downtrend, you’re looking for the trend setup on VWAP. What you want to see is the price moving below the first deviation, like in here in this area. You’re waiting for a pullback. In here, the price touches the first deviation and it also touches the place where the volumes were the heaviest. It touches this blue line. So at this place you actually have the short confirmed by two completely independent trading setups: the setup called volume accumulation setup (a volume-profile setup) and the VWAP trend setup. Those two signals meet here, and that’s what I like to see. You go short from there. That’s the confluence I’m usually looking for. Confluence like that.
So this was a sort of long-term scenario, but let me show you an intraday-trading scenario. This is a 30-minute chart of USD/CHF. What we had in here was also a heavy-volume area created in this little rotation right there. As you can see, there were heavy volumes created there. From that place, strong buying activity started, which makes me think that in this area strong buyers were building up their positions and then they pushed the price upwards with aggressive market orders. Based on that, this should be strong support. The heaviest volumes from this volume-cluster area were right there, so this should work as a support.
Now let me delete that and let’s have a look at the VWAP. This is the first deviation from the previous day. This is what caught my eye: first deviation from the previous day. The day ends here, but what the software does is it prints a dotted line this grey dotted line. I highlighted it in yellow in the picture. It prints the level where the first deviation from the previous day ended. This should also work as a support. This is the rotation-setup support. So we have a VWAP setup telling you to go long from there. But in my case, I wouldn’t really be into that trade if there weren’t those volumes. This wouldn’t be strong enough for me to enter long. But there is the confirmation the volume-based confirmation support. So two signals telling me that there is strong support. VWAP telling me to go long, volume profile telling me to go long. So the best thing to do is actually go long.
So that was the intraday-trading scenario. Now one more example. This is a 60-minute chart of USD/JPY. In here, as you can see, right there in this rotation, massive volumes got accumulated. From this area, strong buying activity started. This indicates that in this heavy-volume area, buyers were slowly building up their buying positions. Then they pushed aggressively with market orders and the price went upwards. Let me delete that and let’s have a look at where the volumes were the heaviest. In this volume cluster in here at this place. This is where the volume profile is the thickest. This is the most significant place. So based on volume-profile logic, this should work as a support.
Now let’s have a look at the VWAP and the deviations. This grey line, which I highlighted in yellow, is the first deviation. What happens is it’s getting closer to the support. Now it hits it, and what also happens is a pullback. Price makes it back to this level, hits the VWAP, hits the volume-based support, and both those the VWAP and the volume profile tell you to go long from there. So a confluence of VWAP and volume profile. That’s what you want to see. That’s, in my opinion, the best way to use VWAP. You can of course use VWAP as a standalone strategy without using anything else, but combining it with volume profile or also with price action is how I personally prefer to use VWAP.
The cool thing about VWAP is you can combine it with your own trading strategies. So if you are not using volume profile, if you are not trading using price action, if you have a completely different set of rules for your trading, you can always add VWAP to that.
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