Get Signals from VWAP and Awesome Oscillator

VWAP, the best trend indicator for scalping and day trading:

The volume-weighted average price is a powerful trend indicator for day trading, and it's crucial due to its heavy use by investment funds and smart-money. It looks like a moving average in your 1 or 5-minute chart (orange, in mine), and is the same weighted-average we learn in school, in this case, used with the two main factors involved in trading: price and volume.

Institutions work the investor's accounts always buying below the VWAP and selling above it. This way their actions push the price back toward the average, instead of away from it. That's great information for retail investors and traders!

I trade the VWAP in two different ways, depending on the type of trade: breakouts, and pullbacks.

- For breakouts, look first when the price is below the VWAP and, due to price action, crosses it with a big momentum candle.  If this candle also breaks any of your resistance lines (or a trendline), that reinforces the strategy. Then look to buy above the high of the big candle that closed above the VWAP: that's the entry point. This strategy also works for supports and always needs a high volume confirmation.

- For pullbacksI only use it in a clear and strong uptrend. During its trend, the stock price always makes a pullback to the downside, returning to the VWAP. So, buy that rejection at the VWAP price. Be careful if the price crosses the VWAP. That invalidates this simple strategy.

Check the 1-min chart below: SPY in a strong uptrend and in three times it pullbacks to the VWAP (grey circles). If you buy that rejections, trailing your stop-loss, you can get nice profits.

The Awesome Oscillator: easy and powerful

There are many good oscillators within technical analysis, all of them searching for momentum. The RSI and the Stochastic are the most popular for traders (in my case I use the RSI in all my timeframes). Among the rest there is one, little known but very effective, which is the one that I recommend below: the Awesome Oscillator (AO), developed by Bill Williams.

Like the MACD, the AO displays a histogram showing the momentum of a recent number of periods (with a 5-period simple moving average) compared to the momentum of a larger number of previous periods (with a 34-period SMA).  But with an interesting and critical variable: uses the midpoints of each bar (H+L)/2. The MACD uses exponential averages and the closing price.

Review its features: 

1 - When AO crosses above the Zero Line, short term momentum is now rising faster than the long term momentum. This can present a bullish buying opportunity. And a cross below Zero signals a bearish selling opportunity.

2- As the MACD, the AO works fine for determining bullish or bearish divergences. As usual, use it just as a warning of a potential reversal in trend instead of continuation, because this signal needs price action confirmation through a candlestick pattern.

3a- A bullish "Twin Peaks" setup occurs when there are two peaks below the Zero Line. The second peak is higher than the first peak and followed by a green bar. Also very importantly, the trough between the two peaks must remain below the Zero Line the entire time.

3b- The same idea works for a bearish Twin Peak: it occurs when there are two peaks above the Zero Line. The second peak is lower than the first peak and followed by a red bar. The trough between both peaks must remain above the Zero Line for the duration of the setup.

4a- A Bullish "Saucer" setup occurs when the AO is above the Zero Line. It entails three bars: two consecutive red bars (with the second bar being lower than the first bar) being followed by a green bar, all on the same side of the Zero Line.

4b- The Bearish Saucer works in the opposite way: two consecutive green bars (with the second bar being higher than the first bar) being followed by a red bar, always below the Zero Line.

Above, click to enlarge for a better view of both setups: a bullish Twin Peak (left) and a bullish Saucer (right), in nice charts taken for  Keep in mind: the Awesome Oscillator is an indicator used to measure market momentum. It can be used in some instances to generate quality signals but much like with any signal generating indicator, it should be used with caution.

Try it. It's easy to learn and bring accurate signals for day trading or scalping, working with the Range Bars. I found this feature by trial and error, using the Average True Range ATR, as the timeframe.