Intraday trading
What is a mean reversion strategy and how do I time entries using intraday VWAP deviations?
By Easy Money Scanner · Educational reference · Not investment advice
The short answer
A mean reversion strategy assumes a stock's price will revert toward an average after moving too far from it, often using intraday VWAP (Volume-Weighted Average Price) as the reference line.
How it works
Traders look for price extending several standard deviations away from VWAP on declining volume, then anticipate a pullback toward that average as momentum fades.
An example
If a stock trades 3% above its VWAP on thin volume late in the session, a mean-reversion trader might anticipate a pullback toward the VWAP line.
Risk & limitations
Mean reversion can fail badly in strongly trending markets where price never reverts; using fixed stop-losses is essential to limit losses from continued extension.
Examples are hypothetical, not trade recommendations. US contract and regulatory references do not automatically apply in Canada. Rules, margin requirements and broker policies can change; confirm them with the relevant authority and your broker.