Introduction to Confluence

Trading
Background
This is an introductory course

I am going to share some basic concepts and talk about how I use them to find areas of confluence on a chart that I
can use to find potential trades

If you find the tools useful then spend the time and effort to learn more about them and practice/backtest using them
on real charts

There is no replacement for consistent effort!

Sources/inspiration for my TA:

I have learned from so many different sources that it would be impossible to list them all

However some of my heaviest influences have been:

● Chartchampions.com
● Tradingriot.com / @Abetrade
● Mindset_BTC
● All of Crypto Twitter, for better or worse!
● The members and superstars in the MindJacked Discord
● Oh and George. Can’t forget George (no matter how hard I try!)
Part 3: The Session VWAP
Now that we’ve figured out how to mark our High Time Frame levels on a chart, which gives us some context around the
“hard coded” areas of potential support and resistance on the chart

I want us to have a look at the session VWAP, which I use every single day for my trading

We will go into what a session VWAP is and how it can be used through this module

Even though we are going to go into some detail about the calculations involved, I want you to remember, as always, that we
are more focused on the WHAT than the WHY in this course

And in terms of WHAT the session VWAP is: it is a dynamic level of support and resistance that also provides us intraday
context
Part 3: Putting the VWAP on a chart
This was covered in detail in Part 1 of this course so if
you followed that you’ll have it on your chart already

If you have no idea what’s going on here, make sure you

go back and check that out

The VWAP is a built in indicator with TradingView so to

add it to the chart you need to:

1 - Click “Indicators”

2 - Type in “VWAP”

3 - Select “Volume Weighted Average Price”

The little star to the left shows that I’ve made it a

“Favorite” so I can find it easily later on
Part 3: Putting the VWAP on a chart
The VWAP will now show on the top left of your chart

1 - Pressing this eye icon will turn it on and off

2 - Pressing the gear icon will open the settings

Part 3: Putting the VWAP on a chart
These are the settings that I use for “Inputs” and “Style”

For “Visibility” I leave the default settings

This setup results in what we call the “Session VWAP”

because it resets at the start of every trading session

Because crypto trades 24/7 this means that it resets at

daily open (00:00 UTC)

It is this specific VWAP that we will concentrate on in

this module

So, to keep things simple, any mention of the “VWAP” in

this module is referring to this specific setup
Part 3: What is the VWAP?
What Is the Volume-Weighted Average Price (VWAP)?
The volume-weighted average price (VWAP) is a technical analysis indicator used on intraday charts that resets at the start of every
new trading session.

It's a trading benchmark that represents the average price a security has traded at throughout the day, based on both volume and
price.

VWAP is important because it provides traders with pricing insight into both the trend and value of a security.

KEY TAKEAWAYS
● The volume-weighted average price (VWAP) appears as a single line on intraday charts.
● It looks similar to a moving average line, but smoother.
● VWAP represents a view of price action throughout a single day's trading session.
● Retail and professional traders may use the VWAP to help them determine intraday price trends.
● VWAP typically is most useful to short-term traders.

(from www.investopedia.com)
Part 3: How is the VWAP calculated?
Assume a 5-minute chart. The calculation is the same regardless of
what intraday time frame is used.

1. Find the average price the stock traded at over the first
5-minute period of the day. To do this, add the high, low, and
close, then divide by three. Multiply this by the volume for that
period. Record the result in a spreadsheet, under column PV.
2. Divide PV by the volume for that period. This will produce the
VWAP.
3. To maintain the VWAP throughout the day, continue to add
the PV value from each period to the prior values. Divide this
total by total volume up to that point.

To make Step 3 easier in a spreadsheet, create columns for cumulative

PV and cumulative volume and apply the formula to them.

(from www.investopedia.com)

See this being applied to the 3 candles contained

within the yellow box on the chart on the right and the
resulting calculation
Part 3: Dynamic Support and Resistance
If you go through the charts and have a
look at how price reacts around the VWAP,
it quickly becomes clear that it often acts
as dynamic (moving) support and
resistance level

If price is trading above it, price may come

down to test it or even try to trade through
it - but truly breaking through it often takes
a lot of strength (i.e. volume)

The reverse is true if price is below it

Part 3: Basic VWAP rules for providing context
“Context” is one of those words in Technical Analysis that seems to be thrown around a lot and can mean
many different things

For example we hear a lot about the “macroeconomic context” and how that is likely to positively or negatively
affect the price of various assets

However when we’re trading the charts in isolation the context is mainly referring to the following and where
price currently is in relation to them:

● Market structure (which is King and you should endeavor to understand as fully as you can)
● Key support and resistance areas
● Liquidity regions on the chart
Part 3: Basic VWAP rules for providing context
Although the VWAP can be used for confluence for medium and high time frame entries (we will discuss this
later) it is most useful for intraday trades

When I say intraday trades I’m really referring to trades that are planned to last from seconds to hours

Certainly not days or weeks

This is logical because the VWAP resets at the start of each new day

So in terms of the context of intraday trades the basic rules the VWAP provides us are as follows
Part 3: Basic VWAP rules for context
1 - If the VWAP is sloping upwards, look for longs while price
is still above it

If price comes down to test the VWAP from the top (with a
small preference for the first test that day) look for a long entry
Part 3: Basic VWAP rules for context
2 - If the VWAP is sloping downwards, look for shorts while
price is still below it

If price comes up to test the VWAP from the bottom (with a

small preference for the first test that day) look for a short
entry
Part 3: Basic VWAP rules for context
3 - If the VWAP is flat the price is likely to just chop around it

This means that both longs and shorts are fine but don’t hold
positions hoping for a big move

Find your entry, define your targets and get in and out
Part 3: Basic VWAP rules for context
4 - In a volatile day, if the VWAP
is relatively flat, price will tend to
snap back to the VWAP if it gets
too far away

Of course “too far away” is

subjective so this will take some
getting used to but it can be very
helpful to give extra context for
your trades

And as always, it isn’t foolproof

but you’ll see it playing out often

See the chart for more details

Part 3: Advanced VWAP rules for context
There are two rules that you can add to the VWAP to give you even greater
confidence in the context for your setup for an intraday trade

1 - No shorts below the previous day’s low

2 - No longs above the previous day’s high

These aren’t hard and fast rules and it doesn’t go to say that taking a
long/short outside of these rules can’t be successful

However when trading intraday, especially when scalping, you’ll likely be

presented several setups in both directions

Choosing only the higher probability trades using these rules will help you to
avoid bad entries, especially in ranging environments (which is what we are
in approximately 80% of the time)
Part 3: Advanced VWAP rules for context
Here we can see that without having the
context of where we were on the chart in
relation to the previous day high (PDhigh) and
previous day low (PDlow) we might have
gotten over excited and longed or shorted (in
the region of the arrows) looking for
continuation

However in practice we would have been

better off waiting for a setup to present in the
opposite direction
Part 3: Finding trades using the VWAP as confluence
Here we can see a simple
setup where the VWAP
provides us with additional
confluence for an entry
after price trades down to
a Untapped Daily S/R level
and appears to find
support

As we can see, we were

below the PDhigh when the
trade opened and so longs
are still in favor
Part 3: Finding trades using the VWAP as confluence
Following on from the
previous trade we see
almost the same thing
happening in reverse

As we can see, price

was above the PDlow
when the trade was
opened so shorts are
still in favor
Part 3: Conclusion
In this module we have learned:

● What a VWAP is
● How it is calculated
● 4 basic and one advanced rule to use with the VWAP
● Trade examples using the confluence we have already learned (HTF levels) with the VWAP

Now that you have the information, your job is to go out and test the VWAP on the live charts

Have a look at how price reacts around and to the VWAP on various timeframes and in various
different environments (trending vs ranging for example) and how you could use it to give you trade
entries