Curated by Andrew Lockwood, London Futures Exchange Veteran (35+ Years Exp)
The VWAP (Volume Weighted Average Price) is one of the most powerful intraday trading indicators used by both retail day traders and large financial institutions. Unlike a standard moving average that treats every candle equally, the VWAP factors in trading volume, meaning prices traded with heavier volume carry more weight.
Institutions have used VWAP since the 1980s as a benchmark to measure whether they are getting good execution on their massive orders. For prop traders today, it acts as a real-time representation of “fair value” and serves as a powerful magnet for price action.
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The Core Logic: The VWAP Magnet Effect
The fundamental rule of VWAP is simple: trade in the direction of the VWAP.
Bullish: If price is trading above the VWAP, buyers are in control, and you should only look for buy setups.
Bearish: If price is trading below the VWAP, sellers are in control, and you should only look for sell setups.
Because VWAP represents the average fair value, price extending far away from the VWAP is considered high risk. The market tends to pull back to its average price, acting like a magnet. This strategy is designed to catch the resumption of the trend after one of these pullbacks.
Regular VWAP vs. Anchored VWAP
To execute this strategy, we use two variations of the indicator:
- Regular VWAP: This resets automatically at the beginning of each trading day or session. For US indices like the S&P 500, it resets at 9:30 AM Eastern Time. For Forex and Crypto, which run 24 hours, it typically resets at 5:00 PM New York time.
- Anchored VWAP: Popularized by trader Brian Shannon, this calculation does not reset automatically. Instead, the trader manually “anchors” it to a specific extreme price point on the chart to measure the average price from that exact moment.
Step-by-Step Strategy Rules
Step 1: Determine the Daily Bias
Load the standard VWAP onto your chart. Check where the price is trading relative to the line.
- If price is above the main VWAP, you are only looking for buy trades.
- If price is below, you are only looking for sell trades.
Step 2: Wait for the Pullback
Wait for price to make an extended move away from the main VWAP, and then watch for it to begin retracing (pulling back) toward the main VWAP line.
Step 3: Apply the Anchored VWAP
Identify the extreme point (the highest high or lowest low) that initiated the pullback toward the main VWAP. Use your platform’s Anchored VWAP tool and place it exactly on that turning point.
Step 4: The Entry
Wait for price to break through your new Anchored VWAP line, moving back in the direction of the main daily trend.
- Buy Entry: Price breaks upward through the Anchored VWAP.
- Sell Entry: Price breaks downward through the Anchored VWAP.
Step 5: Stops and Targets
- Stop Loss: Place your stop loss just above the recent swing high (for short trades) or below the recent swing low (for long trades). Alternatively, some traders place it just beyond the main VWAP line.
- Profit Target: Take profit levels are discretionary and should be based on logical support and resistance zones from the price action. You should never take a trade offering less than a 1:1 risk-to-reward ratio.
Andrew’s Final Tips for Prop Traders
Risk Management: Always predetermine your percentage risk per trade to ensure you manage your downside effectively within simulated prop firm limits.
Backtesting is Non-Negotiable: Do not worry about generalized “win rates” or “profit factors”; it is your job to backtest this strategy on your chosen assets to gather your own data before trading it.
Keep Charts Clean: Standard VWAP indicators often load with upper and lower bands. Remove these in your settings so you can focus strictly on the middle average price line to keep your charts clear of clutter.
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Download the VWAP Strategy PDF Guide
Keep the core rules and chart examples of this strategy at your fingertips with the VWAP Strategy PDF. This guide is designed for educational use and offers a printable checklist format to help you maintain discipline and consistency in a simulated trading environment.
The PDF includes:
• The Anchored VWAP Setup: A quick-reference guide to determining your daily bias, spotting the pullback, and perfectly placing your Anchored VWAP tool.
• Clean Chart Execution: Tips on how to remove the “noise” and standard bands from the VWAP indicator so you can focus strictly on institutional fair value.• Risk Management Protocols: Andrew’s guidelines on placing stop losses around swing points and targeting a minimum 1:1 risk-to-reward ratio.
📄 [Download the PDF Guide]
Ready to put these insights into practice?
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All content is for educational purposes only and is not financial advice. All programs at Funded Trading Plus operate in a simulated environment using virtual funds; payouts are calculated from simulated profits in accordance with program terms. Past performance does not guarantee future re