While trading is often portrayed as a “rock star” profession, the reality is that the majority of the time is spent managing risk in order to let a few winners run for big gains. This is analogous to going on many blind dates in order to finally find someone that you get along with…
On any given day VWAP represents the equilibrium point between price and volume. It is not magic, but it represents an area of harmony on intraday charts.
Often times in an emotional move, such as the short squeeze in the precious metals sector yesterday, price diverges strongly from VWAP as the bulls or the bears head for the hills. Afterwards, price seeks a natural balance once again.
This means that the next day the market sometimes returns to the previous day’s VWAP to double check that the move was legit. It doesn’t mean that price will always do this, but if you took a position don’t make an emotional decision until price has at least been allowed back to that point. It also makes for a low-risk entry point if you are looking to add to a position.
Not only did silver plunge massively last night in Asian trading (erasing its entire parabolic move from 2010-2011) but it also completely recovered today and posted a solid gain. That stellar performance demands a tribute to the “Cave of Swallows” in Mexico:
One of the basic principles of the TEMPOS System is fractal expansion/contraction. Just like you have to breathe in before you can breathe out, price action has to contract after a rapid expansion before building up enough energy to expand again.