VWAP Trading Strategy: The Institutional Tool Retail Traders Ignore

You know what institutions use to execute billion-dollar orders?

VWAP.

Volume Weighted Average Price. The benchmark that determines whether a trader did their job well or poorly.

And most retail traders have never even heard of it.

What VWAP Actually Is

VWAP is the average price weighted by volume throughout the trading session.

Simple explanation: It's the average price that most volume traded at.

If VWAP is $100 and current price is $105, most of today's volume happened at lower prices. Buyers who bought earlier are in profit.

If VWAP is $100 and current price is $95, most of today's volume happened at higher prices. Buyers who bought earlier are underwater.

Why VWAP Matters

Institutions use VWAP as a benchmark. Their job is to execute large orders at or better than VWAP.

This creates predictable behavior:

When price is above VWAP: Institutions with buy orders are happy. They might buy more on pullbacks to VWAP.

When price is below VWAP: Institutions with buy orders are unhappy. They might wait for price to come back down.

VWAP becomes a self-fulfilling prophecy. Because institutions trade around it, it becomes significant.

How I Use VWAP

1. Trend Filter

The simplest use: trend direction.

Price above VWAP = bullish bias. Look for longs. Price below VWAP = bearish bias. Look for shorts.

I don't fight VWAP. If price is below it, I'm not looking for long entries.

2. Pullback Entries

In a trending day, price often pulls back to VWAP and bounces.

Setup:

1. Price trending above VWAP (or below for shorts)
2. Price pulls back to touch VWAP
3. Rejection candle forms at VWAP
4. Enter in trend direction

Stop: Beyond VWAP Target: Session high (or low for shorts)

This is my bread-and-butter intraday setup. I automate it with dashpull. Price within 0.3% of VWAP + rejection candle = enter.

3. VWAP Bands

Some platforms show VWAP with standard deviation bands.

First band: 1 standard deviation from VWAP Second band: 2 standard deviations from VWAP

Price at the second band is extended. Mean reversion likely.

I use bands for:

• Taking profits (when price reaches outer band)
• Fading extremes (reversal trades at outer bands)

4. Opening vs. Closing Relationship

Where price closes relative to VWAP tells you who won the day.

Close above VWAP: Buyers won. Bullish for next session. Close below VWAP: Sellers won. Bearish for next session.

I note this for the next day's bias.

VWAP Trading Strategies

Strategy 1: VWAP Bounce

The classic pullback entry.

Conditions:

1. Clear trend established (price consistently above/below VWAP)
2. Price pulls back to VWAP
3. Rejection candle at VWAP
4. Volume decreasing on pullback

Entry: On rejection candle close Stop: 0.5% beyond VWAP Target: Session extreme or 2:1 reward

Strategy 2: VWAP Reclaim

When price crosses back above VWAP after being below.

Conditions:

1. Price was below VWAP
2. Price crosses above VWAP
3. Holds above for 2+ candles
4. Pullback to VWAP holds

Entry: On pullback hold Stop: Below VWAP Target: Session high

This shows a shift in control. Sellers were winning, now buyers are.

Strategy 3: VWAP Band Fade

Mean reversion at extremes.

Conditions:

1. Price reaches 2nd standard deviation band
2. Reversal candle forms
3. Volume spike (exhaustion)

Entry: On reversal candle Stop: Beyond the band Target: VWAP

Extended moves tend to revert. The bands show when extension is extreme.

VWAP in Crypto

Here's the thing about crypto: it trades 24/7. There's no "session."

So how do you calculate VWAP?

Options:

1. Daily VWAP: Reset at midnight UTC
2. Rolling VWAP: 24-hour rolling window
3. Session VWAP: Based on traditional market hours

I use daily VWAP (midnight UTC reset). It's simple and consistent.

Some traders use weekly VWAP for longer-term trades. The concept is the same.

VWAP vs. Moving Averages

"Why not just use a moving average?"

Moving averages weight all prices equally. VWAP weights by volume.

This matters because:

• High-volume prices are more significant
• VWAP reflects where real money traded
• Institutions use VWAP, not moving averages

For intraday trading, VWAP is superior. For swing trading, moving averages might be more practical.

Common VWAP Mistakes

Mistake 1: Fighting VWAP

Price is below VWAP. "But it looks oversold! I'll buy!"

Don't fight VWAP. If price is below it, sellers are in control. Wait for reclaim.

Mistake 2: Using VWAP on Higher Timeframes

VWAP is an intraday tool. Using daily VWAP on weekly charts doesn't make sense.

For swing trading, use moving averages or anchored VWAP.

Mistake 3: Ignoring Context

VWAP bounce in a strong trend = high probability. VWAP bounce in a choppy range = low probability.

Context matters. VWAP is a tool, not a magic signal.

Mistake 4: Tight Stops

VWAP is a zone, not a line. Price often wicks through VWAP before bouncing.

Give your stops room. 0.3-0.5% beyond VWAP, not right at it.

Automating VWAP Trades

Here's how I use dashpull for VWAP trading.

VWAP Bounce Long:

• Price above VWAP for at least 1 hour (trend confirmed)
• Price pulls back to within 0.3% of VWAP
• Bullish candle forms
• Execute long with stop 0.5% below VWAP

VWAP Reclaim:

• Price crosses above VWAP after being below
• Price holds above for 15+ minutes
• Pullback to VWAP holds
• Execute long with stop below VWAP

The system monitors VWAP relationship continuously. When conditions align, it executes.

The Institutional Edge

Here's the real value of VWAP:

You're trading with the institutions, not against them.

When you buy at VWAP in an uptrend, you're doing what institutional algorithms do. You're aligned with the big money.

When you fight VWAP, you're fighting the big money. Guess who usually wins?

The Bottom Line

VWAP is the institutional benchmark. Understanding it gives you insight into how big money trades.

Use it for:

• Trend direction (above/below VWAP)
• Pullback entries (bounces at VWAP)
• Mean reversion (fades at VWAP bands)
• Session analysis (close relative to VWAP)

dashpull helps me automate VWAP-based entries. Conditions defined. Execution automatic. Aligned with institutional flow.

Trade with the big money, not against it.

Ready to trade with VWAP? Try dashpull →