VWAP Strategy V1

A selective mean-reversion framework designed to capture post-selloff flushes that revert back to VWAP (fair value). Built to stay highly selective — few trades, high R-multiple potential.

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What it does

Targets volatility flushes that often revert toward VWAP (fair value).
Trades the reaction after forced selling — not the initial drop.
Requires both volatility regime + VWAP dislocation + exhaustion confirmation.
Uses a 3-target structure with runner management for large R moves.

What it is not

Not a “buy the dip” strategy during the selloff.
Not a high-frequency / overtrading approach.
No prediction — only reaction to confirmed exhaustion.
No guarantee of performance; designed for testing and iteration.

Best use cases

High-volatility environments with strong intraday ranges
Index CFDs (NAS100 / US30) with clean VWAP behavior
Setups designed for 3R–10R+ potential
As a baseline rulebook for backtesting + future refinements

How it works

The VWAP Reversal Strategy looks for extreme downside dislocations below VWAP that occur during a volatility event. A trade is only allowed when the market shows acceptance below VWAP and then prints a simple exhaustion / absorption confirmation candle. The goal is to capture the mean-reversion move back to VWAP and potentially beyond.

Definitions

Term	Meaning
VWAP	Session VWAP calculated with a reliable reset (Daily by default).
Deviation (Dev)	Standard deviation of (price − VWAP) over a configurable lookback; used to measure dislocation.
Z-Score	`(price − VWAP) / Dev`. Negative values = below VWAP.
Volatility Event	A regime filter: either an unusually large daily range or an unusually large 30-minute candle range.
Acceptance below VWAP	At least N consecutive closes below VWAP (not a single wick).
Exhaustion / Absorption	Evidence that downward pressure is weakening before entry.

Market & Timeframe

Instruments: NAS100 and US30 (treated identically in this version).
Primary timeframe: 30-minute chart (initial version).
Trading style: mean-reversion after volatility flush; intentionally selective.
Date (rulebook draft): 27 Dec 2025.

Setup Conditions (Trade Allowed)

A trade is allowed only if ALL blocks below are satisfied:

Volatility Event (required)

At least one of the following must be true:

DailyRange >= DailyATR_Mult × ATR_Daily(14)
30mRange >= BarATR_Mult × ATR_30m(14)

Why: This prevents taking reversals in low-volatility chop.

VWAP Dislocation (required)

Close is below VWAP.
Z-Score <= -Z_Threshold (e.g., -2.0).
Acceptance below VWAP: at least N consecutive closes below VWAP.

Exhaustion / Absorption (required)

At least one exhaustion sign must be present. Baseline (simple + robust):

A bullish 30-minute candle closes green AND does not make a lower low than the prior bar (Low >= Low[1]).

Optional enhancements (later): wick/volume absorption filters.

Entry Rules

Long Entry (only):

Enter long at the close of the first qualifying bullish 30-minute candle that occurs while the setup conditions remain valid.

Rule: Do not enter during the drop. The candle is the market’s confirmation.

Risk Management & Stop Loss

Stop option A (preferred): Session-Low stop

Track the current day/session low (reset daily).
Stop = SessionLow − Buffer × ATR_30m

This defines a clean invalidation point: if the low breaks, the flush likely continues.

Stop option B: ATR stop

Stop = EntryPrice − ATR_Stop_Mult × ATR_30m
Use if session-low is unreliable on certain CFDs or sessions.

Position sizing: risk per trade should be fixed (e.g., 0.25%–1.0% of account). This strategy relies on large winners; do not oversize.

Profit Taking & Trade Management

Three-target structure (recommended)

TP1 (risk off): +1R OR VWAP − 0.5 × Dev. Close 30%–40%.
TP2 (fair value): VWAP touch. Close 30%–40%. Move stop to breakeven.
TP3 (runner): VWAP + TP3_Dev × Dev (e.g., +0.75 to +1.0). Let it run with trailing stop.

Trailing for the runner

After price reclaims VWAP (or after TP2), trail the stop using recent swing lows:

TrailStop = LowestLow(trailLen) − TrailBuffer × ATR_30m

Note: This keeps you in 5R–10R moves without choking the trade.

Filters (to keep trade count low)

Time filter (optional): trade only during selected sessions (e.g., US cash hours).
No trade if price already reclaimed VWAP before the reversal candle appears.
Optional: Friday late-session filter to reduce weekend gap risk.

Recommended Starting Parameters (30m)

Parameter	Start Value / Notes
VWAP reset	Daily
ATR_30m length	14
Daily ATR length	14
DailyATR_Mult	1.8
BarATR_Mult	2.0
Dev lookback length	50 (start range 30–100)
Z_Threshold	2.0
Acceptance bars below VWAP	2
SessionLow buffer (ATR)	0.2–0.3
ATR_Stop_Mult (if used)	1.2–1.5
TP3_Dev	0.75–1.0
Trail length	6–10 bars
Trail buffer (ATR)	0.2

Implementation Notes

This document defines the first ruleset version for TradingView backtesting.
Next iterations can add: wick/volume absorption filters, 15-minute entry refinement, and multi-day (swing) mode.
Keep NAS100 and US30 identical initially; later you may tune thresholds per index if needed.

Chart visualization

Backtest highlights

Key performance metrics and visuals from the TradingView Strategy Tester export (Pepperstone NAS100 CFD, 30-minute chart).

Net Profit

$5,579

+55.8%

Profit Factor

1.20

Gross P / Gross L

Max Drawdown

$1,443

14.4%

Win Rate

48.8%

484 trades

Sharpe

0.52

Risk-adjusted

Sortino

1.39

Downside risk

Equity curve

Drawdown

Monthly returns heatmap

Note: Results are based on historical backtests and depend on broker feed, spread, slippage, and execution. This strategy is for research and education only.

Version Notes

V1 — Rulebook baseline (30-minute)

Volatility event filter + VWAP dislocation + acceptance + exhaustion confirmation
Long-only reversal logic (reaction, not the initial drop)
Session-low stop (preferred) or ATR stop alternative
3-target management with runner trailing concept

Note: Future versions may add wick/volume absorption, symbol-specific thresholds, and session filters as defaults.