Good morning, traders…
I’ve done it. You’ve done it. Every trader has done it at some point.
The stock rips higher, momentum builds, and fear of missing out kicks in. You jump in at the high, just before the stock pulls back.
Why is chasing so dangerous? Because you’re buying at the worst possible price with the worst possible risk/reward.
Your stop has to be wide because you entered late. Your profit potential is limited because the easy money has already been made.
And when the pullback comes (it always does eventually), you’re the one holding the bag.
But there’s a better way, one that offers tight stops, favorable risk/reward, and entries where Smart Money is actively defending their positions.
It all comes down to a specific line on your charts that institutional traders watch religiously.
When stocks pull back to this line and hold, that’s one of the best entry zones in the stock market. When they break below it, that’s your exit signal.
You might have this indicator on your charts right now, but you’re probably not using it correctly.
It sits there like a Christmas ornament decorating your chart instead of serving as the priceless decision-making tool it actually is.
But if you start using it the right way, this pullback strategy offers one of the highest-probability, low-risk setups you can trade.
This Indicator Takes The Mystery Out Of Pullbacks.
What Is VWAP?
VWAP = Volume Weighted Average Price.
It’s a dynamic line on your chart that calculates the average price of a stock, weighted by volume throughout the day.
Traders use it as a reference for “fair value.” Retail traders watch it. Smart Money watches it. That’s why I watch it.
When a stock is trading above VWAP, buyers are in control. When it’s trading below VWAP, sellers are in control.
And when a stock pulls back to VWAP (and holds), that’s one of the best entry points you can ask for.
The VWAP Pullback Strategy
Here’s the step-by-step process:
Step 1: Find a Stock Trending Up
You want to see a stock showing strength early in the day. Higher highs. Higher lows. The stock is showing momentum and making moves.
Step 2: Wait for a Pullback to VWAP
After the stock pops, it often pulls back toward the VWAP line. This is a cooling-off period where early buyers take profits and the stock consolidates.
Step 3: Look for a Hold (and Bounce) at VWAP
This is your potential entry point. You want to see buyers stepping in, a green candle or reversal pattern forming, and volume picking up again. This confirms the pullback is holding and momentum is returning.
Step 4: Enter Small, Define Your Risk
Buy a small position near VWAP. Set a tight stop just below it. Give it a little room, but not much. If VWAP doesn’t hold, you’re out fast.
Step 5: Set Your Price Target
Target the recent high of the day or a nearby resistance level. This keeps your risk/reward in check (usually 2:1 or better).
Trade Example: Palantir Technologies Inc. (PLTR)
Let me show you how this works with a real setup I took yesterday on PLTR.
PLTR has been rallying, trending higher with momentum.
More importantly, it’s been getting hammered with call volume on my OMEN Scanner.
When I pulled up the chart yesterday, I saw two potential trade ideas:
Setup 1: Breakout Trade
I wrote in my trade journal: “Enter if PLTR breaks above $198 using October 31 $200 Calls.”
Target: $200
Stop: Around $196
Setup 2: VWAP Pullback Trade
I wrote in my trade journal: “Enter on a dip to $195.50 using October 31 $195 Calls.”
Target: $198
Stop: Around $194.20
Conditional Orders
I set “One Cancels The Other” (OCO) orders for both trades.
If PLTR had broken out, I would’ve bought the $200 Calls.
But since it pulled back to VWAP first, I’m in the $195 Calls.
My plan was set for either scenario before the move occurred.
Live Execution
I entered the $200 Calls at $3.40. I scaled out at $3.80 and had another order to sell at $4.10.
With a delta of 0.43, the trade should move up $0.85 if the stock price moves $2.
So if I got in at $3.40, my calculation is: $3.40 (entry) + $0.85 (expected gain) = $4.25.
Why VWAP Pullbacks Work
When a stock pulls back to VWAP and holds, institutions often step in to support it. The Smart Money knows how crucial VWAP is to intraday trading momentum.
This strategy offers measured, repeatable entries because you’re waiting for the stock to come to you.
It forces you to plan your trade before you take it. You know your entry, your stop, and your target before you click the button.
But like any setup, there are ways to mistrade this strategy…
The biggest mistake I see is entering too early before the bounce confirms. You think the stock will bounce at VWAP, so you jump in the moment it touches the line. Then it slices right through and stops you out.
Wait for buyers to show up. Don’t anticipate … respond.
Another mistake? Not respecting your stop-loss. If VWAP breaks, you’re out. No excuses. No hoping it comes back. The setup failed, so you move on.
Keep positions tight and controlled. You can always add to a winner if it works.
Want to see how I trade VWAP Pullbacks in action?
Join Us TODAY at 4:00 p.m. EST for a LIVE Smart Money WORKSHOP.
How To Trade VWAP Pullbacks
Main lesson for beginners: Focus only on the VWAP pullback strategy. Don’t get distracted by all the other trades happening around you. Master one thing before you move to the next.
Risk management: Use proper stops, keep size small on breakouts, and scale in and out based on confirmation.
Have a plan: Execute the plan. Don’t emote. Don’t let fear or greed hijack your decision-making.
Avoid FOMO, embrace JOMO (the joy of missing out). Not every trade is your trade. Wait for the setups that fit your strategy.
VWAP pullbacks give you everything you need: a clear entry, a defined stop, and a favorable risk/reward setup.
The only question is whether you’ll be patient enough to wait for them.
Happy trading,
Ben Sturgill
*Past performance does not indicate future results
