In trading, the tools you use are only as good as the process behind them.
Two of my favorite tools — VWAP (Volume Weighted Average Price) and relative strength (RSI) — can offer powerful insights when used correctly. Today, I want to share how I applied these tools to a recent trade in Amazon (AMZN), and why they helped me make a tough-but-necessary decision.
Let’s start with VWAP...
This indicator is like a magnet for price action, showing where a stock’s average trading price is weighted by volume. It’s a great tool for determining whether a stock is gaining strength or losing steam.
When Amazon dipped below its VWAP in our trade example, I set an alert to see if it could regain that level. This alert keeps things mechanical. No guesswork, no emotions, just data-driven decision-making.
But there’s more to it than just VWAP.
Relative strength is equally important. I ask myself: Is this stock leading or lagging the market? For Amazon, the answer was clear.
Not only was it below VWAP, but it also wasn’t picking up relative strength compared to other stocks in the Magnificent 7 — Tesla (TSLA), Nvidia (NVDA), Meta Platforms (META), Microsoft (MSFT), Google parent Alphabet (GOOG; GOOGL), and Netflix (NFLX).
These heavyweights control the broader S&P 500 and often drive its direction.
Here’s where things got interesting.
By checking RSP — the equal-weighted version of the S&P 500 — I could see that smaller stocks were moving the market, not the big names like Amazon. That lack of firepower from the mega caps was a big red flag. Without leadership from the giants, the odds of Amazon rebounding were slim.
This systematic approach helped me avoid the emotional traps that come with trading. I didn’t let hope or frustration dictate my actions. Instead, I followed the data:
- Was Amazon showing strength relative to the market? No.
- Was it holding above VWAP? No.
- Were the Mega Caps driving the market higher? No.
When you get three "no" answers, it’s time to step back.
These tools don’t just save you from bad trades — they help you become a better, more disciplined trader. VWAP shows where the action is, while relative strength tells you whether a stock has the juice to move higher.
Trading isn’t about guessing.
It’s about stacking probabilities in your favor. Use VWAP to pinpoint key levels, and combine it with relative strength to determine if a stock is worth your attention.
Remember, the market is a puzzle — not a lottery ticket. The more pieces you put together, the clearer the picture becomes. When you master tools like VWAP and relative strength, you’re no longer trading in the dark...
You’re trading with purpose.
I hope that helps!
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