VWAP reclaim and rejection

VWAP, the volume-weighted average price since the open, is the reference used by more institutional execution algorithms than any other intraday level. That is why it works: large buyers try to fill below it, large sellers above it, and their orders show up as price reactions when it is touched. Two setups follow, one on each side of it.

What VWAP is

VWAP = Σ(price × volume) ÷ Σ(volume), calculated from 9:30 ET (or the session open for your product) and reset each day. Every charting platform has it. It is the average price the day's participants have paid, which means:

• Price above VWAP: the average buyer today is in profit; dips tend to get bought.
• Price below VWAP: the average buyer is losing; rallies tend to get sold.
• Price crossing VWAP: the day's balance of power is being decided.

It is not a magic line. It works because of who uses it, and it stops working in the last hour of a trend day when those users have finished executing.

Setup A: VWAP reclaim (long) or loss (short)

The idea: price opens or flushes below VWAP, then crosses back above it and holds. The sellers who pushed it down are now underwater on average, and the buyers who were waiting for their execution price are filling. Direction flips.

  VWAP reclaim, 2-minute bars

                                              _/\  <- target: OR high
                                          ___/
                                     ____/
  ---------------------------------/------------- VWAP
             \        /\      /\  /  ^ entry: close above VWAP,
              \      /  \    /  \/     next bar holds
               \    /    \__/
                \__/
                         ^ stop: under the reclaim bar's low
    9:32   9:36   9:40   9:44   9:48   9:52   9:56

Day type it needs: any day type except a strong trend day against the reclaim; it is the most versatile setup in the module. Best on the first test of VWAP after the opening impulse, 9:40 to 10:15.

Trigger: a 2-minute close above VWAP after at least three bars below it, and the following bar does not close back below. Entry on that second bar's close, or on a limit at VWAP on the next pullback if price runs.

Stop: under the low of the reclaim bar, or under the low of the last swing below VWAP if that is within 1.5× your normal stop. If the stop would be wider than that, the reclaim is too violent to trade with a sensible size; skip it.

Target: the opening range high or the prior swing high, whichever is nearer, for half; the next daily level for the rest.

Invalidation: two consecutive closes back below VWAP. Exit; the reclaim failed and the sellers are in control again.

Rejection variant (short): the mirror. Price rallies to VWAP from below, prints a 2-minute bar with a high above VWAP and a close below it, and the next bar closes lower. Stop above the rejection bar's high. Same targets in reverse.

Setup B: VWAP pullback in a trend

Once the day type is known (after 10:30) and the market is trending, VWAP becomes a pullback level rather than a battleground.

Trigger: price has been above VWAP for at least 30 minutes, pulls back to within a tick or two of it, and prints a 2-minute bar that closes above the prior bar's high. Entry on that close.

Stop: under VWAP by a distance equal to about one-third of the average 5-minute bar range, so ordinary noise does not stop you.

Target: the high of the day for half, a measured move (the distance of the last leg, projected from VWAP) for the rest.

Invalidation: a 2-minute close below VWAP. Exit; the trend day's structure is in question.

The R:R table

Take a reclaim with entry at 50.20, stop at 49.90 (1R = $0.30), first target at 50.65 (1.5R), second at 51.10 (3R).

Realistic distribution over 100 reclaims: 25 invalidations, 20 full stops, 30 partials, 25 full winners.

Expectancy = 0.25 × (−0.4) + 0.20 × (−1) + 0.30 × 0.75 + 0.25 × 2.25 = −0.10 − 0.20 + 0.225 + 0.5625 = +0.49R

That is optimistic; a beginner will not get 25% full winners. Halve the full winners to 12.5% and add them to the stops: −0.10 − 0.325 + 0.225 + 0.28 = +0.08R, which is roughly break-even after cost. The difference between the two is entirely in how often you hold for the second target, which is a Module 6 skill.

Key idea: VWAP works because institutions execute against it. A reclaim tells you the day's average buyer just went from losing to winning, and a rejection tells you the opposite. Trade the flip, and exit when it flips back.

Filters

• Distance from VWAP at the open. If price opens more than about 1% (stocks) or 0.5% (index) away from VWAP and never comes near it, there is no VWAP trade. Do not chase it.
• Angle. A VWAP that is sloping steeply is a trending day; only take the setups in its direction. A flat VWAP is a balanced day; both sides are tradeable, with smaller targets.
• Volume on the reclaim bar. Above average is a real reclaim; below average is likely a drift that will be sold.
• Anchored VWAP from a significant point (the earnings gap, yesterday's low) adds a second reference. Useful once you have the daily VWAP down; not required.

Try it: Watch one session live or in replay with only VWAP on the chart and no other indicator. Mark every touch and note whether price bounced, crossed, or cut through. Ten sessions of this teaches more than any VWAP article.

Recap

• VWAP is the day's volume-weighted average price; it matters because execution algorithms use it.
• Reclaim: 2-minute close above VWAP after time below, confirmed by the next bar; stop under the reclaim bar; invalidate on two closes back below.
• Rejection is the mirror for shorts; the trend pullback version applies after 10:30 on trend days.
• Expectancy depends heavily on holding half for the second target; without that the setup is break-even after cost.
• Filter by distance from VWAP, VWAP slope and volume on the trigger bar.