What is VWAP Reversion?

VWAP (Volume Weighted Average Price) is the average price weighted by volume for the trading session. Large institutions often trade around VWAP, so price tends to revert to this level before continuing its main move. VWAP Reversion is a strategy that waits for price to return to VWAP, then uses candlestick rejection patterns to time a reversal entry with confirmation.

How to Identify the Setup

Plot the session VWAP on the H1 or M15 chart.

Determine the bias: price above VWAP -> focus on longs; price below VWAP -> focus on shorts.

Wait for price to pull back or retrace to the VWAP level after an extended move.

Watch for rejection candles near VWAP.

A stronger signal appears when VWAP aligns with horizontal support/resistance, a trendline, or a chart pattern.

Key Candlestick Rejection Patterns

Hammer / Bullish Pin Bar

In an uptrend, price pulls back to VWAP and forms a hammer: a small real body near the top and a long lower shadow at least 2/3 of the total candle range. It shows buyers defending the VWAP zone and confirms VWAP is acting as dynamic support.

Shooting Star

In a downtrend, price bounces up to VWAP and forms a shooting star: a small real body near the bottom and a long upper shadow. This candle reflects strong selling pressure at VWAP and provides a clear short opportunity.

Bullish Engulfing

In an uptrend, after price pulls back into VWAP, a large bullish candle fully engulfs the previous bearish candle. This shows that buyers have taken control at the VWAP zone.

How to Trade

Identify VWAP and the dominant session bias.

Mark the VWAP zone as a decision zone.

Do not enter simply because price touches VWAP.

Wait for a rejection candle to close: a hammer for long entries, a shooting star or bearish engulfing for short entries.

Trade in the direction of the main bias. For example, buy above VWAP after a hammer forms; sell below VWAP after a shooting star appears.

Set the stop loss below the low of a rejection candle for buys, and above the high of a rejection candle for sells. Target the nearest significant level or at least a 1:2 reward-to-risk ratio.

Real Example

Example on EURUSD H1: price is trending above VWAP and retraces to the VWAP zone at 1.0840. A hammer appears with above-average volume and closes above VWAP. A trader enters long on a break above the hammer's high, places a stop below the hammer's low, and targets the previous high at 1.0900. Price reaches the target after about 60 pips.

Common Mistakes

Entering immediately at a VWAP touch without a confirmed rejection candle.

Trading against the dominant session bias.

Ignoring important news events or low-liquidity periods.

Setting stops too tight around the long wick in volatile conditions.

Using a VWAP timeframe that does not match the trading timeframe.

Content is for reference only, not investment advice. Forex trading carries high risk.

VWAP Reversion with Candlestick Rejection Patterns