VWAP pullback

Why it works

Funds buying a large order during the day want to pay close to VWAP. When price trends above VWAP and pulls back to it, those buyers often step in, creating support.

VWAP resets each session, so it reflects only today's activity, which makes it more relevant intraday than a long moving average.

The rules

Setup

• Intraday trend: price has held above VWAP since the open (or since the first hour) and is making higher highs.
• VWAP itself slopes upward.

Entry

• Wait for the first pullback to VWAP.
• Buy on a rejection candle that closes back above VWAP, or on the break of its high.

Stop loss

• Below the pullback low, or a fixed distance below VWAP (about 0.5× the intraday ATR).

Exit and management

• Target the high of the day, then trail.
• Exit if price closes clearly below VWAP: the intraday trend has changed.

Filters that improve it

• The first and second tests of VWAP are the most reliable; after several crosses it becomes a range.
• Best on liquid markets with real volume such as index futures and large stocks.

Worked example

Illustrative S&P 500 example on 5m: after the open the index rallies from 5,400 to 5,430 and VWAP is at 5,414. At 16:05 UTC price dips to 5,415 and a hammer closes at 5,419. Buy at 5,420, stop at 5,409, target the high of the day at 5,430, then trail.

Illustrative numbers, not a recommendation.

Common mistakes

• Using VWAP on a market whose volume data is not representative.
• Buying VWAP after price has crossed it back and forth all day.

How to practise it

In Candlemind enable VWAP from the indicators and choose US 500 or US 100. Read 5m candles: only trade the first pullback to VWAP in the direction of the session trend.

Pre-trade checklist

1. Price has held above (below) VWAP
2. VWAP sloping in the trade direction
3. First or second test of VWAP
4. Rejection candle closed back on the trend side
5. Stop below the pullback low

Frequently asked questions