Deep value: buying quality near the 200-week VWMA
A quality company sells off to its 200-week volume-weighted average. Scale in at pre-set levels, then manage it like a pullback once the trend turns.
The idea
Great businesses sometimes trade down to where long-term holders have historically stepped in. The 200-week VWMA shows the average price paid, weighted by volume, over about four years. When a quality name reaches it, the risk/reward can tilt heavily in your favor. This is the slowest trade in the book, closer to position trading than swing trading.
What I look for
- A business I'd be comfortable holding through a drawdown.
- Price at or near the 200-week VWMA after a large decline.
- Signs the selling is exhausting: lower lows that stop following through.
The trade
- Scale in. A small starter, then pre-set add levels written down before the first buy. Never adds made up on the way down.
- Shift gears when the trend turns. Once price reclaims its short-term averages, manage it like a pullback: defined stop, trims into strength, trail the rest.
- Target: the prior swing highs, or a revisit of the 200-week VWMA from below.
The tension
Deep value and tight stops don't mix well. A stock near long-term value can keep falling for months. The plan has to say up front whether the stop is a price, a time limit, or the add ladder itself, and then stick to it.
Trades on this setup
2 finished · win rate 100% · expectancy +2.46R · total +4.93R
Related
- Adds only from the planNo adding to a position unless that price or trigger was already written in the plan.
- Moving averages: the 8, 21, 50, and 200-weekA moving average smooths price into a trend line. Four of them do most of the work in this record: the daily 8 EMA, 21 EMA, 50 SMA, and the 200-week VWMA.
- Position sizing: size comes from the stopYou don't pick how many shares to buy. You pick how much you're willing to lose and where your stop is; the share count falls out of the math.
- Pullback in an uptrendA strong stock dips back to its rising 8 EMA and holds. Buy the hold, stop under the day's low, trim into the next push.