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VWAP Mean Reversion with ATR Bands and Rejection Signals

Article Strategy library · Author: Spencer1976
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Summary

This script outlines a mean-reversion approach that seeks a return to VWAP after price moves beyond an ATR-based band. It calculates VWAP and 14-period ATR, places bands 2.5 ATR from VWAP, and sets stop levels 4 ATR away. A long or short signal requires price to have extended beyond the relevant band on the current or preceding candle and then close back inside. The target is VWAP, and a trade is allowed only when the calculated reward is at least 1.5 times its risk.

The script also restricts trading to a specified overnight New York time window and requires the 20-period EMA to have a relatively small change over ten bars. Although described as a two-candle rejection setup, the conditions use either candle independently rather than requiring a rejection sequence across both. The document provides no backtest results, and the chosen session, thresholds, fills, and market may materially affect outcomes.

Key ideas

  • The strategy targets VWAP after price extends beyond an ATR-based deviation band.
  • A rejection signal requires price to return inside the band after an excursion on the current or previous candle.
  • Stops are placed four ATR from VWAP, and the target is VWAP.
  • Trades require a calculated reward-to-risk ratio of at least 1.5 and pass session and EMA-slope filters.
  • No performance evidence is provided, and the signal conditions do not strictly require a two-candle sequence.

Tags

Mean reversionTechnical indicatorsVolatilityRisk management

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.