VWAP Trading Strategy

Why VWAP works

Desks are benchmarked against VWAP. If a desk has size to sell, selling above VWAP looks good and selling below it looks bad. That single incentive creates repeatable behaviour: supply gets layered above VWAP on weak days and withdrawn above it on strong days. You are not predicting — you are positioning around a constraint other participants have to respect.

The three VWAP setups

1. The reclaim

• Context: price has spent the morning below VWAP, then pushes back through it.
• Entry trigger: the first pullback that holds VWAP as support and closes above the 9 EMA on a 2m chart.
• Stop: beyond the swing low of that pullback (hard disaster stop only).
• Target: the prior session high or the upper edge of the current balance zone.
• Invalidation: price loses VWAP again on the next test with supply refreshing. Out.

2. The rejection

• Context: price rallies into VWAP from below and stalls.
• Entry trigger: heavy volume at VWAP with no new high — supply is being added, not consumed. Short the break of the stall low.
• Stop: above the high of the rejection candle plus noise.
• Target: the session low or the lower balance edge; first scale at 1R.
• Invalidation: a clean close above VWAP that holds on retest.

3. The second test (the highest-quality of the three)

• Context: VWAP has already been tested once and held.
• Entry trigger: the second test on lower volume than the first, showing supply has thinned. Enter in the direction of the hold.
• Stop: a few ticks past the test extreme.
• Target: the opposite balance edge; this is the setup that pays multi-R.
• Invalidation: the second test trades more volume than the first. That is fresh supply, not exhaustion — stand down.

Risk sizing

Risk a fixed 1% of the account per trade. Measure the stop distance first, then compute contracts. If the setup requires a stop so wide that 1% only allows a fraction of a contract, the setup is not tradable at your account size — skip it. Skipping is a position.

What to put on the chart

Session VWAP, the 9 EMA, prior-day high and low, and the overnight balance zone. That is the whole chart. Every additional indicator adds a reason to talk yourself into a trade the volume does not support.