VWAP reclaim during Asia session: rules and filters

[LondonScalper]

I don't use VWAP much in London hours. With volume coming from everywhere, the line feels like a lagging average. In the Asian session, though, on USDJPY specifically, I've found it more useful than I expected.

My version anchors VWAP to the Tokyo open (00:00 London in winter, 01:00 in summer, though I adjust) using tick volume from my broker's feed. Not real volume, obviously, but on a quiet session it does the job.

The setup is a reclaim. Price drops below the session VWAP, stays there for at least 15 minutes, then closes an M5 candle back above it. I buy on the next candle if price holds above the line.

Filters I use:

The drop below VWAP should be modest, not more than about 15 pips. A big drop below suggests real selling, and a reclaim is more likely to fail.

No trades in the 30 minutes either side of the Tokyo fixing at 00:55 London (winter), because flows around the fix can push price through the line in either direction.

No trades on days with major Japanese data or BOJ events.

Spread must be at or below its median for that hour.

Stop goes below the low made while price was under VWAP. Target is the previous session high or 1.5 times the stop distance, whichever is closer.

I've only got 38 of these logged, so I'm cautious. The win rate is good, the average winner modest.

[Shadow Trader]

The attached chart is a made up USDJPY M5 example of the version I've been testing, and it raises the question I'd like your view on: how long is too long under the line? In this one price stays under VWAP for about 105 minutes before the reclaim close, far beyond your 15 minute minimum.

img_13033.png (66.61 KiB) Viewed 26 times

In my small sample, reclaims after a long stay below did slightly better, maybe because the anchored VWAP has drifted down towards price by then. The drop from the line also shrinks over time, which helps with your 15 pip filter.

I also wait for the candle after the reclaim to test the line from above rather than buying the open of the next candle. It costs me some trades that run straight away, but the stop below the low is more justified once the line has held once.

On the stop, in the example it ends up about 13 pips from entry, which is large for an Asian scalp. Do you ever skip a valid reclaim because the stop is too wide for the target?

And how do you handle the anchor when the Tokyo open shifts with the UK clocks? I've been anchoring at 00:00 UTC year round to keep it simple.

[Fairman]

No trades in the 30 minutes either side of the Tokyo fixing at 00:55 London (winter)

One refinement for the fixing filter: the flows aren't the same every day. Gotobi days, dates ending in 5 or 0 plus the last business day of the month, are when a lot of Japanese companies settle payments, and importers buying dollars at the fix tends to push USDJPY up into 09:55 Tokyo time more often than on other days. If the date falls on a weekend or holiday, the flow usually moves to the business day before. On those days the move into the fix is bigger and the drop-off after it more noticeable, which is exactly where a VWAP reclaim can look clean and then fail. Tagging gotobi days in the log would show whether the filter needs to be wider on those dates and can perhaps be lighter on the others.

[Shadow Trader]

One thing your rules don't cover is what happens when Frankfurt arrives. A reclaim taken late in Asia can still be open at 06:00 to 07:00 London, and the early European flow can push straight through the line in a way the Asian structure never hinted at.

So I've added a time stop: any reclaim trade still open at 06:30 London gets closed at market, whatever it shows. The attached illustration shows a made up USDJPY M5 example where the reclaim works for a while, gets closed at 06:30, and the line breaks shortly after.

img_13033_r2.png (103.57 KiB) Viewed 18 times

Out of my 27 logged trades, five were closed by it, and three of those would have gone on to hit the stop. Small numbers, but the trade off looks worth it.

On tick volume, it's fine for a quiet session, but switching broker feeds changes the counts enough to shift the line slightly. It rarely matters, though on a close call it can change which candle counts as the reclaim.

The gotobi point above probably feeds into this too, since a bigger push into the fix leaves more for the London crowd to unwind. Have you tested the same rules on EURJPY or AUDJPY, and does the win rate hold up on Mondays?