The AVWAP Setup Every Swing Trader Should Master | Brian Shannon, 35+ years Trading

Key Concepts

• Anchored VWAP (AVWAP): A technical analysis tool that calculates the volume-weighted average price starting from a specific, significant event (e.g., earnings, market lows, or news catalysts).
• Only Price Pays: A core philosophy emphasizing that market participants should defer to price action rather than external narratives, news, or indicators.
• Levels of Interest: The perspective that technical levels (moving averages, VWAP, pivots) are not "magic" support/resistance lines, but areas where market participants are likely to react.
• Fractal Nature of Markets: The concept that market structure (trends, pullbacks, breakouts) repeats across all time frames, from 1-minute charts to weekly charts.
• R-Multiple: A risk management framework where position sizing is determined by the distance to a stop-loss, ensuring consistent risk exposure regardless of the stock price.
• Stage Analysis: A methodology (popularized by Stan Weinstein) for identifying the cyclical flow of stocks through four stages (accumulation, markup, distribution, decline).

1. Trading Philosophy and Methodology

Brian Shannon, a professional trader with over 35 years of experience, defines his style as swing trend trading using multiple time frames. His approach is built on the following pillars:

• Trend Alignment: He never fights the trend. He uses simple moving averages (SMA) and the Anchored VWAP to identify the direction of the "path of least resistance."
• Simplicity: He warns against over-complicating charts. He advocates for "getting back to basics" and focusing on price action.
• Risk Management: Shannon emphasizes that trading is about managing risk, not predicting the future. He uses tight stops and reduces position size ("dimmer switch" approach) as a trade progresses to lock in gains and reduce exposure.

2. The Anchored VWAP (AVWAP)

Shannon is widely recognized as the "godfather" of the Anchored VWAP.

• Definition: Unlike a standard daily VWAP that resets every morning, the AVWAP allows a trader to anchor the calculation to a specific event (e.g., an earnings report, a major pivot low, or a Fed announcement).
• Application: It measures the average cost basis of all participants since that specific event. When price returns to this level, it often acts as a "level of interest" where institutional buyers defend their positions.
• Handoffs: Shannon explains the "handoff" process, where traders move their anchor point from one significant event to the next as a new momentum campaign begins.

3. Step-by-Step Trading Processes

• The "Chase the Gap or Wait for VWAP" Strategy:
  1. Identify a stock with a significant catalyst (e.g., earnings surprise).
  2. If the stock gaps up, wait for it to pull back toward the VWAP.
  3. Enter only when the stock reclaims the VWAP and shows a higher high on a short-term time frame (e.g., 2-minute chart).
  4. Place a stop-loss below the low of the day.
• Position Sizing: Shannon uses the R-multiple method. If he is willing to risk $1,000 on a trade, he calculates the number of shares based on the distance to his stop-loss. A tighter stop allows for a larger position size.
• Exit Strategy: He often sells in thirds. He sells the first third upon hitting a short-term target (like a pivot level) to reduce risk, then manages the remaining two-thirds based on the 5-day, 10-day, or 20-day moving averages.

4. Notable Quotes and Perspectives

• "Only price pays." — Shannon’s mantra, emphasizing that market narratives (news, politics, interest rates) are secondary to what the price is actually doing.
• "Simplicity is the market's greatest disguise."
• "We only know support and resistance after the fact." — He argues that these are not predictive lines but areas of interest where we look for evidence of buyer/seller behavior.
• "Don't argue with the market. Look at the market and manage risk."

5. Recommended Resources

Shannon highlights several influential books that shaped his career:

• Stan Weinstein: Secrets for Profiting in Bull and Bear Markets (Essential for understanding market cycles).
• William O’Neil: How to Make Money in Stocks (For blending fundamentals with technicals).
• Edwin Lefèvre: Reminiscences of a Stock Operator (For lessons on speculation and the dangers of blowing up).
• William Giler: How Charts Can Help You in the Stock Market (For understanding the psychology behind patterns).
• Brad Kadeshwar: The Perfect Stock (A case study on the Taser/Axon run).

Synthesis and Conclusion

The main takeaway from Brian Shannon’s approach is that successful trading is not about finding a "magic indicator" but about disciplined risk management and observing market structure. By using the Anchored VWAP to track institutional cost bases and adhering to a strict "innocent until proven guilty" rule regarding trends (using the 5-day moving average), traders can navigate the market with higher probability and lower stress. Shannon emphasizes that the goal is to be "right from the start" by waiting for clear setups rather than buying into the "hole" of a falling stock.