EXCLUSIVE: Brian Shannon's Favorite Ways To Use The Anchored VWAP

“If you follow me on Twitter TWTR, you know this is one of the things I’ve been hammering all year, really hard — don’t buy the dip,” Brian Shannon, founder of Alpha Trends, said Friday at the 2022 Fintwit Conference hosted by Benzinga and Lupton Capital in Las Vegas.

“And don’t short the breakdown either,” he said. 

So, as traders, what do we do?

Shannon's strategy: buy the low-risk, high-probability setups and manage risk using an anchored volume-weighted price average (AVWAP).

The anchored VWAP indicator ties VWAP calculations to a specific price bar chosen by the trader. Like the traditional VWAP, it incorporates price and volume in a weighted average and can be used to identify areas of support and resistance on the chart.

AVWAP is an important indicator when intraday trading, as it graphically tracks the average price of a stock, using a specific price bar relative to the traded volume.

“It’s the most accurate, objective measurement of supply and demand there is, the anchored volume-weighted price average,” said Shannon. “[It's buying] strength after the dip, when we know for certain buyers are in control, and setting stop losses below the most recent, or relevant lows.”

The AVWAP is the ideal combination of Price, Volume, and Time. When this market trifecta is combined, traders can objectively determine the emergent sentiment from that moment forward, Shannon highlights on his website.

The AVWAP can be studied similarly to a typical moving average because of its moving feature. When employing this indication, keep in mind the AVWAP's direction, and slope and how far above or below price movement is in reference to the AVWAP.