This article details the "VWAP-Slingshot," a mean-reversion strategy for trading failed breakouts that revert to the Volume-Weighted Average Price (VWAP). This setup is for traders who use VWAP as a key reference point for value and who can capitalize on the market's tendency to return to the m

This article details the "VWAP-Slingshot," a mean-reversion strategy for trading failed breakouts that revert to the Volume-Weighted Average Price (VWAP). This setup is for traders who use VWAP as a key reference point for value and who can capitalize on the market's tendency to return to the mean.

Setup Description: The VWAP-Slingshot

The VWAP-Slingshot is a reversal setup that occurs when the price makes a significant extension away from the VWAP, attempts to break out, fails, and then "slingshots" back to the VWAP. The VWAP acts as a gravitational force, pulling the price back to the mean after an overextension.

Key Characteristics

• Price Extension from VWAP: The price must be trading at a significant distance from the VWAP (e.g., 2 or more standard deviations).
• The Failed Breakout: The price attempts to break a key support or resistance level, but the move fails.

Entry and Exit Rules

Entry Criteria

1. Extension and Failed Breakout: A failed breakout at a significant distance from the VWAP.
2. The Reversal: Entry is triggered when a candle closes back inside the breakout level.

Exit Strategy

• Profit Target: The VWAP.
• Stop Loss: Placed just beyond the high/low of the failed breakout.

Risk and Money Management

• Risk per Trade: 1% of account equity.
• Position Sizing: Standard position sizing formula.
• Daily Stop: 2R daily loss limit.

Edge Definition

The edge of the VWAP-Slingshot comes from the effective mean-reverting nature of the VWAP. When the price becomes overextended, the probability of a reversion to the VWAP is high.

• Win Rate: 65-70%
• Profit Factor: (0.70 * 2) / (0.30 * 1) = 4.67