Ch. 17Strategy #619

Strategy #619

VWAP Volume Confirmation

Entry Logic

  • Enter long on a pullback to the VWAP.
  • Confirmation: A bullish reversal candle with high volume.
  • Timeframe: 5-minute chart.
  • Location: At the VWAP.
  • Market Condition: An uptrend.

Exit Logic

  • Profit Target: The previous swing high.
  • Scaling Out: Not recommended.
  • Trailing Stop: A close below the VWAP.
  • Signal Failure: A close below the VWAP.
  • Opposite Signal: A bearish reversal candle with high volume.
  • Time Expiration: End of the day.
  • Momentum Loss: A failure to make a new high.

Stop Loss Structure

  • Hard Stop: Below the low of the reversal candle.
  • Soft Stop: A close below the VWAP.
  • Max Dollar Loss: $100 per trade.
  • Max Percent Loss: 1% of account.
  • Structural Stop: Below the VWAP.

Risk Management Framework

  • Risk Per Trade: 0.5% of account.
  • Daily Limit: 3 losing trades.
  • Weekly Limit: 5% drawdown.
  • Max Drawdown: 15%.
  • R:R Requirement: Minimum 1.5:1.

Position Sizing Model

  • Sizing Approach: Fixed fractional.
  • Volatility Adjustment: No adjustment needed.
  • Conviction Sizing: Full size on A+ setups.
  • Scaling In: Not recommended.
  • Scaling Out: Not recommended.

Trade Filtering

  • Market Conditions: Only trade in uptrends.
  • Setups: Look for pullbacks to the VWAP.
  • Instruments: High-volume stocks.
  • Time Restrictions: No restrictions.
  • Chop/News Avoidance: Avoid trading around news.

Context Framework

  • Trend Direction: Must be in a clear uptrend.
  • VWAP Relationship: Price should be at or above the VWAP.
  • MA Relationship: Price should be above the 50-period SMA.
  • Range Location: Not applicable.
  • Higher TF Alignment: The daily chart should be in an uptrend.

Trade Management Rules

  • Breakeven: Move stop to breakeven after a 1R move.
  • Scale Out: Not recommended.
  • Add Size: Not recommended.
  • Fast vs Slow Moves: Take profits at the target.

Time Rules

  • Optimal Window: Any time during the day.
  • Times to Avoid: None.
  • Session Notes: Works well in all sessions.

Setup Classification

  • A+ Setup: A clear pullback to the VWAP with a strong reversal candle and high volume.
  • A Setup: A decent pullback to the VWAP with a good reversal candle.
  • B Setup: A questionable pullback or reversal candle.
  • C Setup: Avoid weak setups.

Market Selection Criteria

  • Instruments: Stocks with a daily volume of over 2 million shares.
  • Volume: High volume on the reversal.
  • Volatility: Moderate volatility.

Statistical Edge Metrics

  • Win Rate: 55%.
  • Avg Win: 1.5R.
  • Avg Loss: 1R.
  • Profit Factor: 0.825.
  • Expectancy: -0.175R per trade.

Failure Conditions

  • The strategy fails if the trend is not strong.
  • Avoid trading if the reversal candle is weak.

Psychological Rules

  • Be patient and wait for the price to come to the VWAP.
  • Do not force trades.

Advanced Components

  • Regime Detection: Use a trend filter.
  • Filters: Use a volume filter.
  • Correlation: Avoid correlated instruments.
  • MTF Alignment: Ensure higher timeframe alignment.

Location

  • Strongest: In a strong, established trend.
  • Weakest: In a choppy, sideways market.