Trading strategy · Day Trading
VWAP Pullback
Buy where the big money is buying.
▶ Watch the free video lesson with TomWhat it is
VWAP (Volume-Weighted Average Price) is the average price paid for a stock during the day, weighted by volume. Institutions use it as a benchmark. In an uptrending day, price tends to stay above VWAP and pull back to it before continuing. This strategy buys a confirmed bounce off VWAP.
How it works
- VWAP = cumulative (typical price × volume) ÷ cumulative volume, reset each day.
- If price holds above VWAP all morning, buyers are in control: look only for longs.
- Wait for a calm pullback to VWAP (lighter volume on the way down is a good sign).
- Buy when a candle bounces off VWAP and closes back above it with strength.
- Stop just below the pullback low; target the high of day, then trail.
The rules
| Entry | Bullish candle bouncing off VWAP in an uptrending day. |
|---|---|
| Stop loss | Just below the pullback low. |
| Take profit | High of day, then trail. |
| Filter | Price has held above VWAP since the open. |
Pros
- Aligns you with institutional flows
- Tight stops are possible
- Objective dynamic level
Cons
- Intraday only: resets every day
- Requires fast execution
- Fails on choppy days when price crosses VWAP repeatedly
Common mistakes
- Buying VWAP on a day when price has been below it all morning
- No confirmation, just buying the touch
- Trading VWAP late in the day when it barely moves
Lesson transcript
Lesson nine: the VWAP pullback. VWAP stands for volume weighted average price. It's the average price everyone has paid today, weighted by volume, and big institutions use it to judge their fills. Here's an intraday chart. The pink line is VWAP. All morning, price stays above it. That tells us buyers are in control today, so we only look for longs. When price is above VWAP, every pullback to it is a chance to buy where the big money sees value. We don't chase the highs. We wait for price to come back down to the line. Here it comes. A calm pullback right to VWAP. Then the next candle bounces strongly and closes back above it. That's our confirmation, and our entry. Our stop goes just under the pullback low. Tight risk. And as price climbs to new highs of the day, our target is the high of day, then we trail the rest. This only works on trending days. If price keeps crossing back and forth through VWAP, nobody is in control, and you should stay out. Also avoid it late in the day, when VWAP barely moves. The rules. Price above VWAP since the open. Wait for a pullback to it. Buy a strong bounce. Stop under the pullback low. Target the high of day. Recap. VWAP is the day's fair value. In a strong day, buy it when price comes back to it. Next, our final strategy: the bullish engulfing at support.
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