Why am I using this indicator
in my day trading of stocks? Well, I'm not gonna build drama. I'm not going to try to
build up any suspense because it's behind me right now. But the indicator that
I have started to use and I'm absolutely loving is the volume-weighted average price, or more famously known as the VWAP. So why am I using the VWAP? I'll get to that in a little bit, but first, a confession on my part and this actually has a whole lot to do with trading in general because if you're a newer
or maybe you're not, then, if you're not new,
you already know trading is very psychological, very emotional, but I gotta just come clean
and make a confession. I got way too stubborn in my ways. I got way too, my ego got too big. And I have heard about the
VWAP over and over again. In fact, maybe you're saying, "Clay, I didn't know what this is, "so I'm just watching this video "'cause I wanna know
you're going to use it," which I'll get to, but the point is, yeah, I've heard about it,
no, I'm not using that. No, not, no, no, no, and I just got so, so stubborn when I should have just started using this indicator a long time ago. So, you know what, work on that, Clay. Don't be so stubborn. And as you as a trader, like I said, the little miniature lesson here, you know, don't be stubborn. Maybe, are you being somewhere stubborn somewhere else in your trading? I don't know, who knows,
maybe somewhere in your life? But don't be stubborn
because, like I said, I've been using it, I've
been absolutely loving it. It is a great, great indicator to use. Now, maybe you have no
idea what the VWAP is, so I wanna go through
a quick little lesson, but this is also gonna
explain why it actually works and why I am using it. So what is the
volume-weighted average price? Well, let's just first
look at what an average is. So what we have here is a situation where we have the volume, right, so how many shares are traded. Traded what? Well, traded at a certain price, right? So in traditional, you know, averages, if you have something that occurs at $10 and then you have something
that occurs at $20, you would say, okay,
there's been two purchases. Somebody bought a 10,
somebody bought at 20. And the normal average would
be, well, the average means, that is $15, right, 'cause
that's just right in the middle. That would be the normal average. Nothing complicated there, right? Think back. You gotta add up 10 plus 20, then divide by two and you got 15. So that is the average. But what happens if I
added in this detail here? What happens if I said
that well actually at 10, there were 100 shares. So the volume at $10 was
somebody bought 100 shares. And then what if I told
you, well at $20 though, somebody bought 10,000 shares. Is the average price really $15? Now on the surface, yeah, it is $15. But when you add in volume and the quote-unquote impact that it has, well the impact is a lot more
up here at 10,000 at $20. So in other words, the VWAP
is gonna be telling you, "Yeah, no, I don't really
care about that $15 number, "I care about something
much, much closer to $20 "because that's where the
vast majority of the volume "actually took place." Which is quite brilliant actually. That's fantastic. That makes a whole lot of sense. So why does this actually work though? And where is all this coming from? What is it that people believe? And I'm not saying this is
not how it doesn't work. I'm just saying that I'm
sure there's more to it than just this, but like I said, from a broad standpoint,
there's no doubt in my mind that this plays a role in
the big money commissions, Wall Street, institutional
trading, all that. They're using this to help figure out and define one word. And that one word that is
trying to be defined is good. Now what do I mean by good? Well if you are an institution, if you are some big firm and you have a client that says, "I want 500,000 shares
of Facebook, of Apple, "of Netflix, of," insert
any company you want. Well that's what institutional
traders are gonna do. They're gonna go and buy those
500 shares for their client, but their client wants what? What would you want when you buy, when you buy anything? You want a good price, duh. But that brings up the question, well, how though is good being defined? So yeah, you want a good price, but how do they define that? Well that's the VWAP. And the way that works is going back here, we have, actually I'm gonna use yellow because if you start watching
my live trade videos, you're gonna see a little
dotted yellow line. That is the VWAP. So you're gonna have this. And that is just representing the VWAP. So what is defined as good or bad? Well let's stop and think about this. What would be good? If they came to that person
and said, "Hey, guess what? "The majority of the shares we bought "were down here." Well that is, that's fantastic, why? Well because the
volume-weighted average price, the average price when
you factor in volume was way up here. But Mr. Client, we were
able to get you less than what the average person was buying. That's gonna have a happy client, right, when you can go and say, "I got you less." And that's also gonna get
the trader extra bonuses and they're gonna get yearly rewards and stuff like that because they were able to keep the client happy. And when you keep the client happy, they give you more business and that's just business 101. Now the other part is well what happens if people are buying up there? How is the client gonna be
feeling in this situation? I mean if you go to the client say, "Yeah, you know, "we got you the 500,000
shares, but it was actually, "we paid more than what the
average price out there was." Wait, you paid more? You paid more than what the average? That's not gonna make the person happy. That's not good. But you don't know what good is unless you have some sort
of standardized thing. And the standardized thing, again, goes to the VWAP. So how does this pertain to trading? Well what is gonna happen in theory, there's no such thing as a holy grail. So like I said, this is just in theory. This is what people believe. And I'll get to that in a second. But what happens as the price
moves away from this area? Oh, wow, it's below the VWAP, I can impress, I can put a
smile on my customer's face. So there is gonna be buying. Why is there gonna be buying? Again, it's gonna make the customer happy. Now I'm not trying to totally tell just, but what does buying do? Well buying causes prices to rise, right? So eventually, what is going to occur? The price is going to
rise back up to the VWAP. Now the problem here is that if the price goes up above the VWAP, now what's happening? Well the further and
further it goes above VWAP, there's gonna be less and less what? There's gonna be less and less buying because wait a second, I don't wanna be buying
up there for my client. I want a smiley face. I don't want them
frowning and mad and sad. So I mean, they'll buy some, right? Because I mean if it's 500,000 shares, their endgame is to try
to keep it below here. But the further and further
it gets above that area, there's not gonna be as
much buying pressure. So when if there's not
enough buying, what happens? Well selling pressure is eventually just gonna take it back down and the price is going
to return to the VWAP. So that is why prices
below tend to rise back up, prices above tend to rise back down because it's all a function of, if you think about that
institutional trader who only cares about his Christmas bonus or his bonus in general or how good of a price he's getting. And think about that, how
good of a price he's getting. How good of price being defined
as relative to the VWAP, well then of course he's gonna stop buying the further it gets up there. And selling will eventually
bring it back down. But the further it goes below, yeah, he's gonna start buying which brings the price back up. And then to bring up some terminology, this is why the VWAP, when
the price is below it, tends to act as the resistance. And this is why when the
price is above the VWAP, it tends act as support, keyword being tends. This is not guaranteed. It's just a general philosophy. So why am I actually using this? Well one word, belief. But more importantly, 'cause like I said, I'm sure some of you, if
you're some that are like, "Clay, the VWAP? "What do you mean you're
just now starting to use it? "I mean it's like,
everybody uses the VWAP. "Everybody uses it for these reasons "you just explained, ya moron. "Why are you now just using it?" Because I told you, my ego got in the way. I got stubborn, that's why. But why am I loving it? Why should you be using the VWAP? I don't know if any of this stuff is true, but you know what? Enough people out there
believe it to be true. And when you have enough belief, we have this wonderful thing
in the world of trading known as a self fulfilling prophecy. Whereas when prices rise
and get near the VWAP, because something is
supposed to be the case, everybody just does what
is supposed to be the case which therefore creates
what's supposed to happen. So if there's stuff out there where people are just believing and just
because of that belief alone, like I said, who even knows
if this stuff is true? But when enough people
believe it to be true, then it's going to work by definition, a self-fulfilling prophecy. So that's why I've started to use it is because I put my
stubbornness aside, yes, but why wouldn't I use
it when so many people out there are using and so
many people believe in it? I'm not saying they
shouldn't believe in it, I believe in it. But I just believe in it
because a lot of other people believe in it and there's
a self-fulfilling prophecy. I don't believe in it 'cause I don't know the
commission structure to the fine grain details on Wall Street, and I don't care. I just wanna know, what
does the herd believe? What do the lemmings believe? What do the vast majority
of people believe? And if most people believe
that this has some sort of magical and mystical powers, then my question is, okay,
how can I arrange that to benefit my trading? Which is the same way
you should be thinking. And it all goes back to that
self-fulfilling prophecy. So that is why I'm now using the VWAP. Why I found some, I mean, it's great. It's amazing how many times
where you'll have this sort of situation where you have the VWAP, and then the price is
above so it comes down, bounces and then stays above it. And then when the price
breaks below it, (yells) everybody freaks out. And then eventually it works there. And then it gets rejected, and it gets rejected. It is crazy. I mean, pull up a chart. Look at the VWAP and see how many times the price almost perfectly
bounces off that level. So yes, that is what the VWAP is. That is why I'm starting to use it. And this is how it all works. Let me know in the comments section though how long have you been using the VWAP? Are you gonna at least give it a try? Some of you are probably
like, "I've been using it "for like 10 years, Clay. "Welcome to the party." Fair point, but I am curious, how long have you been using it or maybe this is the first
time you've ever heard of it, or if you just have any other
questions on it in general, let me know in the comment
section down below. And then also hit the like
button, if you enjoy this. I will keep on making
these sorts of videos if I know that people are interested. And the quickest way for you to show me that you are interested is
just to click that like button. And then also, just check out the channel. Hopefully, you decide
to ultimately subscribe. But yeah, I'm using the VWAP. I love me some self-fulfilling prophecies. First off, thanks so much for
watching the entire video. Real quick, before you go, I wanna invite you to a live webinar, web class, training,
workshop, online event, whatever you wanna call it, but it will be me, live, revealing to you what I've discovered that has
allowed me to transform myself from being an employee
to being my own boss. Including how I had only one losing day out of 73 days in total. I'm going to cover three
keys that have helped me unlock profitable consistency
within the markets. The first key is super weird, but in a productive type of way. The second key is super awesome, because it, quite literally, is wired into our DNA as humans, making it very easy to use. But in a cruel way, this becomes
a pitfall for many traders. I'll explain it all though, including how to avoid the
pitfall that it creates for some. And yeah, the third key when you hear it sounds way too good to
be true, but it's not, and I'll show you how it all works. Then at the end, I open it up for a question and answer session that is, again, totally live. Even if you can't make the live session, please still sign up
as it will be recorded, and you can go back and watch the replay that I will send you. Click the image on the screen or click the link down
in the description box so you can get the date and time and claim your spot which I should note, is limited due to the fact
this truly is a live event. If you have any questions, let me know. If not, I'll be seeing you soon.
