Pre-Market VWAP Calculation

Entry Logic

• Entry trigger: Price pulls back to and finds support at the pre-market VWAP for a long, or resistance for a short.
• Confirmation: A bullish or bearish candlestick pattern (e.g., hammer, shooting star) on the 5-minute chart at the VWAP level.
• Timeframe: 5-minute chart.
• Location context: The trade is taken at the VWAP, which is acting as a dynamic support or resistance level.
• Market condition: A trending pre-market session.

Exit Logic

• Profit target: The previous pre-market high for longs, or the previous pre-market low for shorts.
• Scaling out: Not recommended.
• Trailing stop: A manual trail below the low of each 5-minute candle for longs, above the high for shorts.
• Signal failure exit: Exit if the VWAP level is decisively broken.
• Opposite signal exit: Not applicable.
• Time expiration: Exit if the trade is not profitable within 60 minutes.
• Momentum loss: Exit if the price stalls at the VWAP level for more than 3 candles.

Stop Loss Structure

• Hard stop: 15 cents below the VWAP level for longs, 15 cents above for shorts.
• Soft stop: A close below the VWAP level.
• Max dollar loss: $150 per trade.
• Max percent loss: 0.3% of account capital.
• Structural stop: Below the low of the entry candle for longs, above the high for shorts.

Risk Management Framework

• Risk per trade: 0.15% of account equity.
• Maximum daily loss limit: 0.6% of account equity.
• Maximum weekly loss limit: 1.5% of account equity.
• Maximum drawdown: 6% from peak equity.
• Risk-reward ratio: Minimum 2.5:1 required.

Position Sizing Model

• Sizing approach: Risk-based position sizing.
• Volatility adjustment: Not applicable.
• Conviction sizing: Not applicable.
• Scaling in: Not recommended.
• Scaling out: Not recommended.

Trade Filtering

• Market conditions to avoid: Choppy, range-bound pre-market sessions where the VWAP is flat.
• Specific setups required: A clear trend and a respectful pullback to the VWAP.
• Stock/instrument requirements: Stocks with high pre-market liquidity.
• Time of day restrictions: 8:00 AM to 9:15 AM ET.
• Chop/news avoidance: Avoid trading around major news releases.

Context Framework

• Trend direction: Trade in the direction of the pre-market trend.
• VWAP relationship: The trade is based on the VWAP.
• Moving average relationship: The 9-period EMA should be above the 20-period EMA for longs, and below for shorts.
• Range location: Not applicable.
• Higher TF alignment: The daily chart should not have major resistance/support just above/below the entry.

Trade Management Rules

• Breakeven: Move stop to breakeven after a 1.5R move.
• Scale out: Not applicable.
• Add size: Not applicable.
• Fast vs slow moves: Let the trade work, but be prepared to take profits if it stalls.

Time Rules

• Optimal window: 8:30 AM to 9:00 AM ET.
• Times to avoid: The first 30 minutes of pre-market trading.
• Session notes: This strategy is effective because many institutional algorithms use VWAP.

Setup Classification

• A+ criteria: A perfect pullback to the VWAP in a strong trend with a clear confirmation candle.
• A criteria: A good pullback to the VWAP in a decent trend.
• B criteria: A choppy pullback or a weak trend.
• C criteria: Avoid all other setups.

Market Selection Criteria

• Instrument requirements: Any stock with good pre-market liquidity.
• Volume/liquidity: Minimum 50k shares traded by 8:30 AM ET.
• Volatility: Moderate volatility.

Statistical Edge Metrics

• Win rate: 60%.
• Avg win: 2R.
• Avg loss: 1R.
• Profit factor: 1.2.
• Expectancy: 0.2R per trade.

Failure Conditions

• The strategy fails when the VWAP level does not hold as support or resistance.
• Avoid when the pre-market session is very low volume.

Psychological Rules

• Trust the VWAP as a key level.
• Do not chase the price if you miss the entry at the VWAP.

Advanced Components

• Regime detection: Not applicable.
• Filters: Filter for stocks that have a history of respecting the VWAP.
• Correlation: Not applicable.
• MTF alignment: The trade should be in the same direction as the 60-minute chart trend.

Location

• Strongest: In trending, high-volume pre-market sessions.
• Weakest: In choppy, low-volume pre-market sessions.