VWAP Mean Reversion
Enters when price overextends >2σ from VWAP and shows two consecutive reversal candles. Exits at VWAP or after 45 minutes. Only on range-bound days.
Calculates intraday VWAP and rolling standard deviation. When price moves >2σ away from VWAP AND shows TWO consecutive reversal candles (both closing back toward VWAP) → enter expecting reversion. Exit at VWAP or after 45 minutes (time stop). The 2-candle requirement filters out single-candle counter-moves that happen in strong trends.
Low ADX confirms range-bound market. High ADX = trending, mean reversion fails badly.
Confirms the stock isn't in a breakout. Wide range = trending, not ranging.
Multiple crosses prove VWAP is 'active' — price respects it as a magnet. Without crosses, VWAP is irrelevant.
Single counter-candles happen in strong trends. Two consecutive candles confirm the reversal is real, not a brief pause.
More extreme = higher reversion probability. 1.5σ fires too often with lower accuracy.
Wider SL to avoid premature stops on volatile mean-reversion. The 3σ level is a true outlier.
The mean is the target. Simple, statistically sound, and self-fulfilling.
If no reversion in 45 min, it's a trend — exit regardless of P&L. Mean reversion that doesn't revert is a trend.
Range-bound afternoons. Stocks oscillating around VWAP. Low ADX environments. Multiple prior VWAP touches. Sector-neutral days.
Trending days (ADX > 25). Breakout moves that don't revert. News-driven directional moves. Expiry days (pinning distorts VWAP). First hour of trading.