VWAP Reversion

VWAP resets each day to provide the day's volume-weighted fair value. Yesterday's trading is less relevant for today's fair value. The reset ensures VWAP reflects current session activity only.

VWAP is most meaningful on liquid stocks with consistent volume. On illiquid stocks, VWAP can be erratic due to low volume. Stick to liquid names where VWAP is widely watched.

VWAP is typically displayed on intraday charts (1-minute, 5-minute, 15-minute). It's calculated cumulatively throughout the day regardless of chart timeframe. 5-minute is most common for trading.

VWAP bands are standard deviation envelopes around VWAP. Upper/lower bands at ±1 and ±2 standard deviations show statistically extreme levels where price may be overbought/oversold relative to VWAP.

VWAP is the institutional benchmark for execution quality. Many large traders try to buy below VWAP and sell above VWAP. This widespread usage makes VWAP a self-fulfilling support/resistance level.

VWAP slope is the direction VWAP is trending. Rising VWAP = bullish (accumulation at higher prices). Falling VWAP = bearish (distribution). Flat VWAP = ranging day, ideal for mean reversion.

Anchored VWAP starts from a user-selected point (earnings, swing high/low, gap) rather than market open. It can run for multiple days, showing fair value since that significant event.

Best: 10:00 AM - 2:00 PM after opening volatility settles and with time for reversion. Avoid: First 30 minutes (too volatile) and last 30 minutes (VWAP resets soon; less time for reversion).

Trending: Price stays one side of VWAP >80% of session; VWAP slopes strongly. Ranging: Price crosses VWAP multiple times; VWAP is flat. VWAP reversion works best on ranging days.

No. Standard VWAP resets each day, so your reference level disappears. Exit same day using a time stop (by 4:30 PM). For multi-day holds, use Anchored VWAP from a specific event.

VWAP algos spread large orders throughout the day to achieve execution at or near VWAP. They participate proportionally to market volume. This creates consistent order flow and is a common benchmark for execution quality.

VWAP deviation % = (Price - VWAP) / VWAP × 100. It quantifies how far price is from VWAP in percentage terms. -2% deviation is significantly below fair value; +2% is significantly above.

Plot several Anchored VWAPs from different significant points (earnings, swing high, swing low, gap). Where multiple VWAPs converge creates strong confluence zones for support/resistance.

Close above VWAP: Institutions were net buyers (bullish for next day). Close below VWAP: Institutions were net sellers (bearish). The close relative to VWAP often influences next day's bias.

Use VWAP bands as strike selection: Sell puts at lower band, sell calls at upper band for iron condors. Buy calls at lower band bounce, buy puts at upper band rejection for directional plays.