VWAP pullback

Formula

Step 1: the trend is up when EMA 20 is above EMA 50. Step 2: the candle before closed above VWAP. Step 3: this candle's low touches VWAP or goes below it, and the candle closes back above VWAP. Then the rule plans a Buy. A downtrend is the mirror and plans a Sell. Step 4: entry = the next candle's open. Step 5: stop = the lowest low of this candle and the 2 before it, minus 0.1 x ATR. The stop is never closer than 0.5 x ATR. Step 6: R = entry - stop. Target = entry + 1.5R. If the next candle opens at or below that low, the setup is skipped. Step 7: the trade ends at the target, the stop or the day's last close. If 1 candle reaches both, the stop counts. Only 1 trade runs at a time.

How it is read

Here is an example. ATR (average true range) is the usual size of 1 recent candle. Say ATR is 20 points. The lowest low of the 3 candles is 25,290, and the next candle opens at 25,310. The stop is 25,290 - 2 = 25,288. R is the gap between the entry and the stop, so R is 22 points. The target is 25,310 + 1.5 x 22 = 25,343. Here is how a trader can win with this rule. Each win is 1.5R and each loss is 1R. Take 4 trades. 2 hit the stop for -2R and 2 hit the target for +3R. The total is +1R. So being right on 2 trades in 4 is enough to come out ahead. A win is more likely when EMA 20 and EMA 50 are clearly apart, so the trend is real. Wait for the candle to close back above VWAP, and keep the stop where the rule put it. When a stop is hit, the stop did its job. The dip went deeper than planned, and the loss stayed at 1R. Medium risk level here means the stop is closer than in trend follow, but not the closest. It sits just past the pullback. To try it, open Paper Trading and turn on VWAP, EMA 20 and EMA 50 in Indicators. Watch for a dip to VWAP. Write down the 3 prices before you place an order for 1 lot.