pullback to VWAP

A good article via smbtraining:

Now… how to use VWAP. First of all, I dont make any mechanical trades off of VWAP, but one I think you can make (haven’t really run the numbers to prove it) is to buy the first retracement to VWAP after a strongly trending stock makes a new high of the day. Reverse for shorts. (Every part of that sentence in bold is important. If you ignore any part of it (for instance, buying the second or later pullbacks) I think you could be in trouble.) You could also use this as a profit target if, for instance, you bought a stock on a fade at the lows and are wondering where to take most of your sells… VWAP is likely to be a source of natural selling pressure so I would lighten up there.

Without doing considerable backtesting there does seem to be some merit in this: I have marked in Green days which were clearly going higher and in all cases but one this approach works:

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4 thoughts on “pullback to VWAP

  1. Hey toast,

    Fwiw, a few thoughts on VWAP:
    In my experience the first pullback to VWAP after a strong directional push on open is a often a good opportunity to join the *suspected* developing trend. That said, if, after a VWAP test, the market fails to sustain its directional drive and fails to make a new high/low, or even fails to hold the VWAP area, the directional nature must be questioned immediately.

    A fantastic source on VWAP is Dr. Steenbarger’s Traderfeed Blog, for example:

    http://traderfeed.blogspot.com/2009/02/vwap-trends-and-consolidations-longer.html
    http://traderfeed.blogspot.com/2009/02/using-vwap-to-determine-structure-of.html
    http://traderfeed.blogspot.com/2009/12/playing-moves-back-to-vwap.html
    http://traderfeed.blogspot.com/2010/03/relevance-of-vwap-in-range-market.html

    Ich hoffe, es geht dir gut!

    • hi Benko, thank you! I did not know Steenbarger actually used market delta – I am still not sure how you spot “volume at offer has exceeded volume at the bid” on the footprint charts.

      I am good thanks, I was in Brussels for the weekend with my gf and her parents who are visiting from Brazil – it was nice, 20 degrees on Saturday. Went to Brughes too. Great waffles, frites, beer, chocolate! – how is it with you ?

  2. Es geht mir gut, danke. Gut zu hören, dass Du Spaß in Brüssel hattest!

    I have a lot of private things going right now and have been not trading much recently. I am also rethinking a few things in my trading approach. CU soon!

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