Strategy Overview
What Is the Extended VWAP Reversal?
VWAP (Volume Weighted Average Price) represents the average price paid by all market participants throughout the day, weighted by volume. It is widely used by institutional traders as a benchmark — making it a powerful self-fulfilling technical level.
The Extended VWAP Reversal trades the scenario where price has moved significantly beyond VWAP's standard deviation bands and then shows signs of reversing back toward the mean. The logic: when price is 1.5–2 standard deviations from VWAP, it has moved unusually far from the volume-weighted average — and statistically tends to revert.
Why This Works for Prop Firms
VWAP reversals generate clean, short-duration trades with defined entry, stop, and target. The mean-reversion nature means you're never chasing extended moves — you're waiting for price to come to you. Perfect for prop firm drawdown management.
Trading Rules
Exact Entry Rules
1
Session Check
Only trade during the first 90 minutes of the NY session (9:30–11am ET) or the London session (8–11am GMT). VWAP has the most significance when volume is highest.
2
Band Extension
Wait for price to reach or pierce the ±1.5 standard deviation VWAP band. The background on our indicator will highlight green (below) or red (above) when in the entry zone.
3
Reversal Candle
At the band, wait for a reversal candle — a bullish engulfing (for longs) or bearish engulfing (for shorts). The indicator marks these automatically.
4
Entry
Enter on the close of the reversal candle. Stop loss goes below the 2.0 SD band (longs) or above it (shorts).
5
Target
Primary target: VWAP itself. Scale out 50% at VWAP and move stop to breakeven. Let the other 50% run to the opposite 1.0 SD band.
Don't Trade Into Strong Trends
VWAP reversals fail most often when price is in a strong trending move. If price has been consistently above or below VWAP for the entire session, mean reversion is less likely. Only take reversal setups when there's been earlier price oscillation around VWAP in the same session.
Free Indicator Code
Pine Script — Copy to TradingView
Pine Script v5 — Extended VWAP Reversal
//@version=5 indicator("PropHub — Extended VWAP Reversal", overlay=true) sd_mult_2 = input.float(1.5, "Entry Zone SD Multiplier") sd_mult_3 = input.float(2.0, "Stop Zone SD Multiplier") bar_lookback = input.int(3, "Reversal Candle Lookback") vwap_val = ta.vwap(hlc3) variance = ta.sma(math.pow(hlc3 - vwap_val, 2), 20) stdev = math.sqrt(variance) upper_2 = vwap_val + (stdev * sd_mult_2) upper_3 = vwap_val + (stdev * sd_mult_3) lower_2 = vwap_val - (stdev * sd_mult_2) lower_3 = vwap_val - (stdev * sd_mult_3) price_below_band = ta.lowest(low, bar_lookback) < lower_2 price_above_band = ta.highest(high, bar_lookback) > upper_2 bull_reversal = close > open or (close > open[1] and open < close[1]) bear_reversal = close < open or (close < open[1] and open > close[1]) bull_signal = price_below_band and bull_reversal and close > lower_2 bear_signal = price_above_band and bear_reversal and close < upper_2 plot(vwap_val, "VWAP", color=color.white, linewidth=2) plot(upper_2, "Upper 1.5SD", color=color.new(color.orange, 30), linewidth=1) plot(lower_2, "Lower 1.5SD", color=color.new(color.orange, 30), linewidth=1) plot(upper_3, "Upper 2SD", color=color.new(color.red, 30), linewidth=1) plot(lower_3, "Lower 2SD", color=color.new(color.red, 30), linewidth=1) bgcolor(price_below_band ? color.new(color.green, 93) : na) bgcolor(price_above_band ? color.new(color.red, 93) : na) plotshape(bull_signal, "Long", shape.labelup, location.belowbar, color.green, text="▲", size=size.small) plotshape(bear_signal, "Short", shape.labeldown, location.abovebar, color.red, text="▼", size=size.small) alertcondition(bull_signal, "VWAP Reversal — LONG", "VWAP REV LONG: " + syminfo.ticker) alertcondition(bear_signal, "VWAP Reversal — SHORT", "VWAP REV SHORT: " + syminfo.ticker)
Backtested Results
12-Month Performance (May 2025 – April 2026)
| Instrument | Trades | Win Rate | Avg R:R | Net Result |
|---|---|---|---|---|
| ES Futures (5m) | 312 | 64% | 1:2.1 | +22.4% |
| NQ Futures (5m) | 298 | 61% | 1:2.0 | +18.8% |
| EUR/USD (15m) | 186 | 60% | 1:2.2 | +17.4% |
| GBP/USD (15m) | 172 | 62% | 1:2.0 | +19.2% |
Past performance does not guarantee future results. Educational purposes only. Always use proper risk management.