Vwap Deviation Signal
Quick Reference
| Property | Value |
|---|---|
| Dimension | signal |
| Category | mean_reversion |
| Version | v0.9.0 (Beta) |
| Output Column | vwap_deviation |
VWAP deviation signal: price - vwap - measures mispricing relative to volume-weighted consensus price
Formula
price - vwap
CDM Inputs
| Column | CDM Table | Description |
|---|---|---|
price | cdm_* | CDM source table |
vwap | cdm_* | CDM source table |
Parameters
This FeatureType has no configurable parameters.
Output
Column: vwap_deviation
Deviation of current price from VWAP
Market Intuition & Trading Rationale
VWAP deviation measures the gap between the current price and the volume-weighted average price: price - vwap. VWAP is the "consensus" price — it represents the average price paid by all participants, weighted by their conviction (trade size). A positive deviation means price is above the consensus — the market is trading at a premium to the average participant's cost basis. A negative deviation means a discount.
Institutions use VWAP as their primary execution benchmark because it represents what a passive participant would have paid. When price deviates from VWAP, two forces push it back: (1) mean reversion — participants who missed the VWAP will execute when price returns to it, and (2) anchoring — traders use VWAP as a reference price for their own orders. These forces make VWAP a strong attractor, especially intraday.
The strength of the VWAP anchor varies through the day. It's strongest mid-day (when most volume has been established and VWAP is stable) and weakest early in the session (when VWAP is still forming and can be moved by large orders). VWAP deviation signals are more reliable after the first hour of trading.
Usage Cases
- VWAP reversion strategy: Buy when price < VWAP (discount), sell when price > VWAP (premium). This is one of the most popular intraday mean-reversion strategies, used by both institutional algos and retail traders. The strategy works because large participants execute near VWAP, creating natural support/resistance.
- Execution algo anchor: When executing a buy order, aim to fill below VWAP — you're beating the average participant. If price is above VWAP, use limit orders and wait for reversion. If below, you can be more aggressive.
- Support/resistance level: VWAP acts as dynamic support (in uptrends, price bounces off VWAP from above) and resistance (in downtrends, price rejects from VWAP from below). The vwap_deviation magnitude indicates how far price must travel to test this level.
- Trend strength gauge: In strong trends, price stays on one side of VWAP all day and VWAP itself trends. In range-bound markets, price oscillates around VWAP. Monitor whether deviation crosses zero frequently (ranging) or stays on one side (trending).
YAML Definition
name: vwap_deviation_signal
description: 'VWAP deviation signal: price - vwap - measures mispricing relative to
volume-weighted consensus price'
category: mean_reversion
version: v0.9.0 (Beta)
dimension: signal
status: Pre-release
required_inputs:
- price
- vwap
output_column: vwap_deviation
output_description: Deviation of current price from VWAP
parameters: {}
formula: price - vwap