Important Intraday VWAP Concept

On Monday Morning I was asked about PBYI as a purchase candidate at (point A) on the chart. The questioner mentioned that the stock had traded as high as $100 pre-market. My response was, the stock is below declining vwap and do not want to purchase at that time. About 30 min later the questioner mentioned it was above vwap but then quickly said, no it wasn’t (point B.) The questioner realized that the stock had simply moved above and then quickly back down through the vwap.

Another 20 min or so later I posted the chart below with these comments.

The lesson here is that simply getting above vwap is not a reason to make a decision to buy, especially on the first spike above where the stock had moved very quickly above it. Instead, we want to see consolidation near the vwap and then buy when the stock makes a higher high on the short term timeframe. The higher high would have been above the band of resistance outlined in red. Because the stock never made it above that level it was not a purchase.

Sticking to the sidelines in this case was a decision which avoided a drop of $4/share in about 10 minutes!

Risk management is ALWAYS job #1!

Alphatrends is NOT a daytrading service but there are times when the intraday action on a 1 minute chart should be analyzed to help fine tune entries or exits in a volatile stock. We have a chatroom which runs from 9AM Est til noon, the purpose of the chat room is to manage swing trade entries, provide education and answer reader questions. It is NOT an active daytrading room, leave that for the kids.