What it is
vwap is the average price of the session weighted by volume. Institutions benchmark executions against it, algorithms slice orders around it, and day traders treat it as the fair price of the day. This playbook trades two events: a reclaim, where price has been below VWAP, pushes back above it and holds; and a reject, where price rallies into VWAP from below and fails. The same logic applies mirrored for shorts.
The playbook is not a breakout system and not a pure fade. It is a location system: you only take trades at one reference level, and the level tells you who is under pressure.
The logic
Every long taken today at a price below VWAP is, on average, in profit; every long above it is, on average, losing. When price crosses VWAP, the average participant flips from winner to loser, and losers act differently from winners. A reclaim with volume means the sellers below VWAP are being absorbed and the average short is now underwater. A rejection means buyers who chased the rally into fair value found no follow-through and the average long is trapped.
On the other side of a reclaim are shorts who sold the earlier weakness and passive sellers who are working orders around VWAP as a benchmark. On the other side of a rejection are dip buyers who expect a full recovery. The setup works when their pain becomes your fuel, and fails when they are right and the level simply gets absorbed.
Setup rules
- Market: anything with real intraday volume, so that VWAP is meaningful. Index futures, large caps, liquid ETFs, high-volume crypto perpetuals during active hours.
- Timeframe: 5-minute chart for structure, 1-minute for the trigger.
- Reclaim conditions: price has spent at least 30 minutes below VWAP; a 5-minute close back above VWAP with relative-volume above 1.2x; the next bar does not close back below.
- Reject conditions: price approaches VWAP from below after a downtrend of at least 45 minutes; a 5-minute bar touches or pierces VWAP and closes below it with an upper wick of at least half the bar's range.
- Do not trade the first 15 minutes, when VWAP is barely formed and easily crossed by noise.
Entry, stop, target
For a reclaim, buy the first pullback that holds above VWAP (a 1-minute higher low), not the crossing bar itself. Stop goes below the pullback low or 0.25 ATR below VWAP, whichever is wider. For a reject, short the close of the rejection bar with a stop above its high.
| Item | Reclaim long | Notes |
|---|---|---|
| VWAP | 50.00 | Rising slowly |
| Entry | 50.12 | Higher low after reclaim |
| Stop | 49.85 | Below pullback low, risk 0.27 |
| Target 1 | 50.66 | 2R, near the morning high |
| Target 2 | 50.93 | 3R, prior day high |
Take half at 2R, move the stop to breakeven, and trail the remainder along the 5-minute VWAP band or a 1 ATR trailing stop. Flat by the close.
Position sizing and risk
Fixed-fraction sizing at 0.25 to 0.75 percent of equity per trade. Because the stop is often small relative to the noise, your fill quality matters; do not use market orders in thin names. Use the calculator at /tools/position-size, and read /learn/risk-management before adding a second VWAP trade on the same name in the same direction. Two losses at VWAP in a row usually mean the day is not a VWAP day; stop.
What breaks it
- Trend days. On a strong trend day price never returns to VWAP, and every reject signal is a loser against the trend. The reject side of this playbook underperforms badly in strongly directional regimes.
- Chop. In a tight range VWAP is crossed a dozen times, and each cross looks like a reclaim. The volume filter helps but does not save you.
- Edge decay. VWAP is watched by everyone, and the obvious first cross is frequently faded by larger players who see the crowd. That is why this playbook waits for the pullback rather than buying the cross.
- Costs. Tight stops mean the spread and slippage eat a meaningful share of each trade. Names with a spread above 5 percent of your stop are not tradable this way.
How to test it
Replay 150 sessions bar by bar, marking every qualifying reclaim and reject. Record the r-multiple under your rules, the maximum adverse excursion, and whether the day ended as a trend day or a range day (a simple test is whether the close was in the top or bottom 20 percent of the range). You will likely find the reclaim side works better in trending sessions and the reject side better in rotational ones; that conditional result is the real finding. Minimum 100 trades per side before drawing conclusions. Then trade it in a simulator for 30 sessions to calibrate execution.
Variations
- Anchored VWAP reclaim from a gap or an earnings-report rather than the session open; see anchored-vwap.
- VWAP band mean reversion: fade moves that stretch two standard deviations from VWAP back toward it in known range days.
- VWAP as a trend filter for other playbooks, such as opening-range-breakout or momentum-ignition-volume.
Further reading
vwap, anchored-vwap, mean-reversion, relative-volume, wick, fakeout, r-multiple, expectancy, chop.
Related playbooks: opening-range-breakout, momentum-ignition-volume, afternoon-reversal, initial-balance-extension