Capitalizes on price returning to volume-weighted fair value
| Strategy Type | Intraday Volume-Weighted Mean Reversion System |
| Market Outlook | Capitalizes on price returning to volume-weighted fair value |
| Risk Profile | Defined by VWAP band or ATR-based stops |
| Reward Profile | Targets VWAP or opposite band reversion |
| Time Horizon | Intraday (30 minutes to 6 hours typical) |
| Best Markets | Range-bound intraday conditions, liquid instruments |
| Signal Type | Price deviation from VWAP with band touch and reversal |
| Market Hours | ASX: 10:00 AM - 4:00 PM AEST |
| Vwap Reset | VWAP resets daily at 10:00 AM ASX open |
| Best Underlyings | Index VWAP trading with consistent volume • BHP, CBA, CSL, RIO - liquid stocks with smooth VWAP • STW, IOZ - broad market VWAP plays • SPI 200 futures - excellent VWAP respect |
| Timeframe Recommendations | 5-minute to 15-minute for entries • For broader VWAP context • N/A - VWAP is intraday indicator • VWAP most reliable mid-session (11 AM - 2 PM) |
| Vwap Components | Cumulative (Price × Volume) / Cumulative Volume • VWAP + 1 Standard Deviation • VWAP + 2 Standard Deviations • VWAP - 1 Standard Deviation • VWAP - 2 Standard Deviations |
| Common Parameters | 1.0, 2.0 standard deviations • Touch of 1st or 2nd band • VWAP line or opposite band • Avoid first 30 min and last 30 min |
| Asx Considerations | Fund managers use VWAP for execution • Higher volume at open/close affects VWAP • Pre-open auction not included in VWAP |
Most charting platforms include VWAP as a built-in indicator. In TradingView, search for 'VWAP' in indicators. It appears as a line on your chart, usually with bands. For ASX stocks, ensure your chart is set to the ASX session.
VWAP is primarily an intraday indicator that resets each session. For daily/weekly analysis, use anchored VWAP from specific dates or different indicators like moving averages. Standard VWAP is meant for intraday trading.
In the first 30 minutes, VWAP has insufficient data and changes rapidly with each trade. Bands are unreliable. After 30+ minutes, enough trades have occurred for VWAP to represent true volume-weighted average.
This is a breakout, not a reversion setup. If price closes through the band with strong volume, don't fade it. Wait for the next setup. Confirmation (reversal candle) is required to filter out breakouts.
Check VWAP slope and price crosses. Range day: flat VWAP, price crosses VWAP 3+ times. Trend day: sloping VWAP (>0.2%/hour), price stays on one side. By 11:00 AM, you should have a good read on the day type.
Analysis shows band 2 (74% WR) significantly outperforms band 1 (58% WR). Use band 2 for primary entries. Band 1 can be used for scaling or in very range-bound conditions, but with reduced confidence.
Compare VWAP values over time: Slope = (VWAP_now - VWAP_2hrs_ago) / VWAP_2hrs_ago. Flat: <0.1%/hour (good for reversion). Moderate: 0.1-0.2%/hour (selective). Steep: >0.2%/hour (avoid reversion).
Risk 1-1.5% per trade. Calculate: Position = (Account × Risk%) / (Entry - Stop). Stop is beyond band (band 2 + 0.2% buffer). For scaled entries, divide risk budget between band levels.
VWAP is an intraday indicator - avoid holding VWAP trades overnight. VWAP resets next session, making your reference point invalid. Exit before close (3:30 PM latest) and reassess next day.
Yes, common combinations include: RSI (oversold/overbought at bands), volume profile (confirmation), pivot points (confluence), and order flow (advanced confirmation). Each adds confirmation and improves win rate.
Calculate VWAP starting from a specific bar (event) rather than session start. Anchor from: earnings releases, swing highs/lows, breakout points, or major news. Compare price to anchored VWAP for context on post-event fair value.
At band touches, watch delta (buy vs sell volume), CVD trend, and tape absorption. Positive delta turning at lower band = buyers stepping in. Large bids absorbing sells = accumulation. This adds 10-12% to win rate.
Analyze historical price deviation from VWAP. If distribution has fat tails (kurtosis > 3), use tighter multipliers: 0.8×SD for band 1, 1.6×SD for band 2 instead of 1.0× and 2.0×. This captures actual behavior better.
VWAP standard deviation varies throughout the day: wider at open/close, tighter midday. Dynamic bands should widen in morning (SD ~0.85%), tighten midday (SD ~0.55%), and widen afternoon (SD ~0.70%).
Walk-forward test parameters: band multipliers (1.5-2.5), time windows, slope thresholds, instrument selection. Optimize on training data, validate on out-of-sample. Avoid over-fitting. Robust parameters work across conditions.
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