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Breaking down anchored VWAP with AlphaTrends.net Founder Brian Shannon, CMT: YF Uncut

Volume weighted average price (VWAP) was created in 1988 as a benchmark for institutions to determine the quality of their order execution. It is the average price for the day, weighted by volume, with each share traded getting equal weight. The cumulative average builds throughout the day, and if more volume comes in on an up move, the VWAP will rise, but if more volume comes in as the market moves lower, the VWAP will decline, and prices will be below it.

According to veteran trader and alphatrends.net founder Brian Shannon, CMT, we can determine with 100% accuracy who has control at the beginning of the day based on where the VWAP is in relation to it.

When thinking about support and resistance levels, traders use the word "porosity," which is similar to drawing a trendline with a crayon instead of a straight edge, where the VWAP becomes a battleground in that area. He calls them levels of interest rather than levels of resistance. The anchored VWAP initiated from the all-time high for the NASDAQ, for instance. It measures sentiments with precision and tells us that from that top, the average long participant is losing money because the price is lower than the average, while the average short seller is making money.

Shannon advises that as the market comes up to the anchored VWAP, not only will long people be looking to break even, but short sellers might put a big offer on there and try to scare the long holders out of it. He sees it as a transition of a balance of power, and if buyers are able to wrestle away control and take control of the trend, prices can re-emerge in a new uptrend supported by the average participant being in a profitable position and the average short seller scrambling to cover their losses.

Shannon advises looking at the shorter-term timeframe for trend alignment and measuring sentiment and psychology to determine who is in control from a particular event. He suggests measuring VWAP from an event and looking for the first couple of days or two, where buyers gain control, and then a battle ensues where sellers regain control. By analyzing the sentiment and psychology, traders can determine whether the buyers or sellers have regained control and make informed trading decisions.

Video Transcript


JARED BLIKRE: Welcome to another episode of "Yahoo Finance Uncut." I am your host, Jared Blikre. Today, joining me is a veteran trader. I learned a lot from him over the years. He is the founder of AlphaTrends.net. It is Brian Shannon. And Brian, you are also the author of a new-- a brand new book about anchored VWAP called "Maximum Trading Gains with Anchored VWAP, The Perfect Combination of Price, Time, and Volume."

We're going to be getting into that in a minute. But I just want to get into your general overview. I like to ask guests-- we are in the middle of February, or actually we're towards the end of February right now. This probably a taped presentation for most listeners. But we're going to keep it very relevant to what's been happening.

We had earlier this week the worst day of the year. We've seen Fed hawkishness in view kind of rear its ugly head again. And we're not going to spend too much on fundamentals here. We're going to deal with the technicals. But, Brian, what are you seeing in the markets right now?

BRIAN SHANNON: Jared, I think that, you know, 2022 obviously was a bad bear market. And people are still kind of licking their wounds from that. I've said from the beginning of the year I kind of think that theme for this year is if they didn't scare you out last year, they're likely to wear you out.

Now, it's not a call for a neutral market necessarily, but I think that we're still going to need some time to digest those losses. You know, we've still got bad inflation numbers today. And, you know, I think there's still a lot of uncertainty that people aren't willing to commit in a major way.

So the good news about that is though it creates a good trading environment, and in particular, for individual stocks. The problem-- the flipside is not a lot of stuff is following through. So, to me, it's an environment where we're still in a heightened sense of defensiveness, and we've got to just trade a little bit smaller, and have lower expectations, and hope that we get pleasantly surprised.

JARED BLIKRE: All right, we're going to get into some tickers in a minute-- in a minute here, but I want to get to the subject, the heart of the matter here, why we're here, your book on anchored "VWEP." And as you pronounce it, VWAP. Brian, we've talked about this over the years. I never got used to the VWAP. And I down at the floor at the New York Stock Exchange, a lot of guys down there they say, "VWOP,"-- "VWEP," excuse me. I'm still stuck in my ways here. So forgive any confusion about that ahead of time.

But just tell me what the premise is behind VWAP and then how you've morphed this use case into something a lot more generalized and powerful.

BRIAN SHANNON: Right, so, first of all, I didn't invent it. I-- something I stumbled upon really back in 2003, and there was really very little information about it. So what I found out was, first of all, what is VWAP, the Volume Weighted Average Price. The Volume Weighted Average Price was invented in 1988 as a benchmark for institutions to determine whether or not they got a good execution on an order.

So it's the average price over the course of one day, weighted by the volume. So each single share traded gets an equal weighting. It's a cumulative average that builds throughout the day.

So if more volume is coming in on the up move, then the Volume Weighted Average Price will be rising. If more volume is coming in as the market moves lower, then the Volume Weighted Average Price will be declining and prices will be below it. And we can tell with 100% accuracy who has control from the beginning of the day based on where it is in relation to it.

The way that most people can really think about it, Jared, is the Volume Weighted Average Price is basically a dollar cost average, where if you put a certain number of dollars into a particular stock every single month, well some-- some months if the stock is $20 per share, you're going to buy 50 shares. If the stock is $50, you're going to buy 20 shares.

Because that's dollar cost averaging. It's your Volume Weighted Average Price at the end of the year. And it's similar for The daily Volume Weighted Average Price.

JARED BLIKRE: And Brian, I have a chart that I prepared-- or actually, I've copied off of you, as you prepared this chart. It's of the NASDAQ 100 Index. And you have anchored "VWEP," or VWAP, from the all-time high here, it looks like in mid-November of 2021. And you can see it capturing the price here. Not-- not perfectly-- I think as investors were used to dealing with a certain amount of porosity when it comes to indicators. But very, very closely it captured all of these pullbacks.

And the way I like to think about this, Brian, because I've been using this tool a long time alongside you-- you've actually expanded the use cases for me, and we can get into that later. What I like to think about it is, it is the average price at which a person-- the average investor has gotten into the market since a period of time. And so you can tell, are they winning or are they losing?

And right now, because they're under this red line right here, the average investor is underweight. And then a very powerful signal here. When we get back up to that red line, you can think of the average position as break even.

Well, what do a lot of people do when they reach break even after sitting on losses for a long period of time? A lot of people are just going to go ahead and sell, to be able to say, oh, I got out with a small profit and didn't incur that loss. So I think in there comes some of the predictive power why we see these reactions off of the line. Just like to get your reaction to my little explanation there and then what you're seeing in this chart.

BRIAN SHANNON: Yeah, so a couple of things to unpack there. One, the anchored Volume Weighted Average Price is simply we chose a starting point other than the beginning of the day. In this case, the all-time high for the NASDAQ. And what it allows us to do is measure sentiment. It's really the ultimate sentiment indicator.

Because when we think of sentiment, we think of the investors polls that say, hey, I'm bullish or bearish. But it doesn't mean, that's what they're doing with their money. This tells us with precision that the average participant in the NASDAQ 100-- from that top, the average long participant is losing money because the price is higher. The average price is higher.

The average short seller-- you can't forget about them-- is making money. So they're-- maybe as the market comes up to that anchor VWAP, not only do you have long people looking to break even, but you might have the short sellers putting a big offer on there and trying to scare the long holders out of it.

So a word that you mentioned was one that was actually coined by Dr. Levine, Paul Levine, who invented the anchored VWAP, and that was porosity. And what he said-- it's kind of similar to what I learned from Larry McMillan, that you draw a trend line with a crayon instead of a straight edge and a pencil. But you want to-- you're going to expect there's a-- it becomes a battleground in that area.

So I don't always call them a level of resistance when we get to them. I call them a level of interest, where we want to see how that battle unfolds, and whether the sellers maintain that control, or if the buyers are able to wrestle away the control, take-- take control of the trend and prices then can reemerge in a new uptrend that's supported by the average participant being in a profitable position, and the average short seller scrambling to cover their losses maybe.

JARED BLIKRE: Very good explanation. I want to look at a different chart here. Let's go to something you brought to my interest, Dynatrace, ticker DT. And this is a longer term look. This goes back to its October high-- I believe all-time high of 2021, so similar time period as the NASDAQ. And then we can drill down into an intraday time frame and look at some other things.

But when I look at this longer term chart, goes back a couple of years, it reminds me of the NASDAQ, what we were just looking at, in a certain way, except we've broken above this critical threshold right here, the red line, the potential resistance. Now maybe potentials for support, definitely a level of interest, I would say.

BRIAN SHANNON: Definitely level of interest. And, Jared, the thing here is the stock peaked at about 80. Nobody knew it was the high at that point.

But, you know, after it broke down to about 65, 70, we can look at that and say, you know what, that was an important high. That's when we set that anchor. Because we realized that was an important high. So we want to start to measure sentiment against that.

And as the stock drops over the next six months, down to as low as $30 per share, that was the vicious part of the bear market. That was the part where they scared people out. Then from about May of last year, up til just the beginning of February, they wore people out.

It's the transition of balance of power that the buyer-- the V bottoms, they seem like they occur. So it seemed like a V bottom in May, but there was no follow through there. Now we have a much more solid base here that the prior resistance seems to be holding the support, the stock was up on big volume a couple of weeks ago related to an earnings report. So we want to say the sentiment shifted there.

There was a big disruption in the supply and demand, which caused that gap on big volume. So that's when we take a look at the shorter-term time frame to look for trend alignment, which, of course, was the first book I wrote.

So in here, you've got-- it looks like a 15-minute, maybe a 10-minute--


BRIAN SHANNON: -time frame. So that first red, or the second anchored VWAP is anchored to that event. And what you want to do is measure the sentiment, the psychology-- who's in control from a particular event.

And what we'd often see is, you know, the buyers were gaining control that first couple of days or two. And then we'll start to see that battle. And now the sellers have regained control in here for now. And it's below that anchorage Volume Weighted Average Price from the earnings.

That tells me with 100% certainty the average long participant who bought after earnings, the average is losing money. Because the average price is $44.46. And here we are at $42.85.

It's not a huge loss, but it tells me I don't want to buy yet. I want to buy when the buyers regain control of that shorter-term trend and put it in alignment with that bigger picture trend, especially when we're in this shaky environment.

The blue line that it's interestingly holding, that's the year-to-date anchored Volume Weighted Average Price.


BRIAN SHANNON: And that is always a measurement that you want to keep an eye on because that's how institutions are often benchmarked for their performance. And what you can see is this stock is tightening up. It's pinching in that-- in between those two anchored Volume Weighted Average Price levels.

So as the range gets tighter, we'd want to see some higher lows. And then if it can break above that prior high, at about $45 per share, that tells me the buyers will be in control. And then my worst-case stop would go underneath the recent low, just underneath the-- the previous one back, right there.

Because if we buy the short-term higher high in anticipation that it's going to be in alignment with the bigger picture time frame, well, I don't want to set my stop 7% away, 8% away, 4% away. I want to base my stop on the definition of trend. The definition of uptrend is higher highs and higher lows.

So if I buy that higher high above the flat horizon anchored Volume Weighted Average Price, my stop would go underneath the most recent and relevant higher low. That would be right there. So if it breaks back down, the definition of trend is no longer existent. I have no reason to continue to hold the stock.

JARED BLIKRE: Very important things that you're going over here. And I just want to spend a little bit more time on risk management since you're talking about stocks. Anchor VWAP a way-- just a way to formulate your risk management-- your risk management, I guess, plan here. But this is something that pervades your thought process with respect to trades, whatever-- whatever you're using right here.

And why don't you go over it? I mean, you've written about this and talked about this for years, but some of the basics is if you know where your general entry is, and you can place a stop, well, then you can calculate potential risk-reward. I don't believe you're necessarily into that because you're not about price targets as much.

But you do have-- you are able to define your risk going into the trade in absence of a huge stop blowout, gapped down to the downside, which I guess does happen. You're going to be a lot better off than somebody who's just sitting on their hands and hoping for the best.

BRIAN SHANNON: Yeah, and so a couple of things you said there, Jared. One, as far as price targets go, you're right, I don't like a price target. I think that people get hung up on a price target. I think it forms an anchor in your mind. And that's what the anchored Volume Weighted Average Price is all about, about Daniel Kahneman's work about the investors biases, the heuristics. And one of those is the anchoring bias.

We're anchored to the price that we pay. Then we become anchored to-- because that's-- that's our most important price. We measure success or failure based on that. So what I want to do is not set this price target in my mind that it's going to go to $50 per share. I can't sell until it gets there. And I'm going to keep my stop where it is.

People say the winners take care of themselves, and I don't believe that. I think you have to manage your trade once you're in it, and continue to raise your stops up underneath the most recent relevant higher low, as it makes those higher lows, and listen to the message of the market when you get out.

It's a great idea, though, of course, to have a general idea where the stock can go. And since we don't see much resistance here in this time frame, we'd have to flip back to the daily time frame and say, what looks reasonable here?

Does it look reasonable that it can make it up to $50 per share? Is there any prior big resistance in there? That looks like a reasonable-- not expectation, but a reasonable place where it could run up to.

So if we buy it at $44, we're looking forward to go up to $50, that's approximately six points of upside. And if we have our stop at $42.50, then we're risking 1 and 1/2 points. So that would be a really nice risk-reward. That would be a $1-- a $1.5 risk for 6 points of upside. That's a 1 to 4 risk-reward ratio, which is a great risk-reward ratio.

But the danger, again, with price targets, and price objectives, I like to call them, is they're garbage in, garbage out. They're only as good as are you looking at the right things? Does the market agree with you? So to me, I look at it and say, it has a reasonable chance of getting there. But my job is to manage risk, not just get focused on that abstract number.

JARED BLIKRE: That's a really good point. And just thinking about risk management and trading in general, one of the things I've been talking about recently with a number of traders is the percentage of wins is actually fairly low for most momentum traders, looking at a win percentage of maybe 1 in 3. And it can go as low as 1 in 4. It can be as high as 50%.

But these momentum traders are just looking to follow the trend. They're not trying to catch the falling knife or the huge inflections in the market. And I'm just wondering what your thoughts on your approach to trading.

Because it gets back to the tendency that I was talking about before, which is traders see, OK, I've been down in this trade for a while. I get back to a little bit of green. Now I can hit the exit button. There are some powerful things to unpack there. Just wondering what your-- what you see.

BRIAN SHANNON: Well, you know, it's all about psychology always. And I'm not sure I got the full question, what it was there, Jared, but where I'm going to go with this is that it depends on time frames as well. You're talking about momentum traders and maybe 1 in 3, for instance. And the whole idea is that's just the simple math.

If I make money one time, and I make $5, or $6, let's say in this trade, but I lose two, three, four other times, and I lose $1 each one of those times. I don't want to lose, but the math adds up that if I lose $1 three times in a row, but I make $6 1 out of 4, well, then my risk-reward-- my one winner covers those losers, which is why it's so important to go back to the basic principles of trading, hold your winners and cut your losers.

But have a strategy based on realistic analysis and honest to your time frame. If it's a swing trade, day trade, or even investment, that these anchored Volume Weighted Average Price levels will give us an opportunity to just formulate a much stronger plan.

JARED BLIKRE: Great advice. And we're going to get back to some tickers and some charts in a second. Just want to take a moment to, I guess, talk about how you came into what you call your discovery of VWAP and anchor VWAP here, excuse me. Some of the methodology, and just your background in terms of how you came to view the markets as you do.

You're a very well-respected trader. You've given freely of your time. You also charge for services, of course. But I learned about you years ago. And I've seen you on Twitter just really be generous with your analysis, putting a lot of free stuff out there. And so just tell us a little bit about your journey, going back to your roots in trading.

BRIAN SHANNON: Yeah, well, you know, I've-- I like to help people on Twitter. And I've got a-- an easy way of explaining things, I think, that a lot of people-- you know, I-- I started as a retail stockbroker in Boston. And I remember, you know, not-- actually, it wasn't at Lehman Brothers, but a small firm before that.

The manager said, you know, your customers are like mushrooms. Feed them [BLEEP] and keep them in the dark. And I was like that doesn't make sense. Why don't we just explain what's going on here and earn their trust? Why do we want to do that to them?

So I started out as a retail broker in 1991. I was immediately fascinated with trading. The first book I devoured was Stan Weinstein's book, his classic, "Secrets for Profiting in Bull and Bear Markets." Then I read, you know, just every technical analysis book I could get a hold of. And I went through the same process that everyone does.

You know, I started looking for head and shoulders patterns. I looked for cups and handles. I looked for stochastic crossovers and MAC-D, and RSI, and moon phases, and every single indicator and oscillator you can think of. You know, I've looked at them. And a lot of them are really good. They can help point you in the right direction.

But when it came to the Volume Weighted Average Price, and in particular the anchored Volume Weighted Average Price-- it was about 2003, I was trading on a platform called Real Tick. And Real Tick had the daily Volume Weighted Average Price. And I would look at that, and, you know, no one was talking about this. I couldn't find any information. I mean, the search engines barely worked back then, right?


BRIAN SHANNON: You know, that was 20 years ago. So I started noticing, hey, you know what, it pulls back and find support there often. So then I would change-- I kind of hacked-- I mean, it wasn't really much of a hack, but I left that VWAP on there.

And I would-- instead of looking at one day, where it was meant to be looked at, I would look at five days, 10 days. And I would say it gapped higher four days ago. And I would-- so I'd look at four days. And I'd just be astounded by how the stock would be supported at this Volume Weighted Average Price level.

So I tried to find as much information as I could about it. I just, you know, continued to be curious. I wrote my first article about it in 2008. And then it was in 2015 that TC2000 made it really accessible to the-- to the public, which is they were the first ones to do a point and click anchor so I could anchor from any point on the chart.

Yahoo Finance's EU followed suit about two years after that. And I believe, Jared, that was-- was that four years ago or so?

JARED BLIKRE: That seems a long time ago. I remember you telling me about this book when you were in our studio in 2016 or 2017. So the time period sounds about right. I had a conversation with our head of product, Charlie Hartel afterwards. I'll give him a shout out on Twitter. And he was the one who was generous enough to allocate some of the engineers time and programmers' time to implement this in Yahoo Finance.

BRIAN SHANNON: Yeah, exactly. So it's there for free in Yahoo Finance, which is an amazing resources. If people aren't familiar, go to the Yahoo Finance charts and look for that anchored VWAP icon. And Jared's pulling it up right here. And set your anchors. And it's just the same as the other tools. In fact, some sophisticated tools don't have-- platforms don't have it.

But, you know, it's become mainstream. A large part, I think, due to my efforts of just non-stop talking about it for the last 15 years on Twitter. And finally, I've written this book so I can share my experience and knowledge, and help other people learn from what I've learned the hard way, the School of Hard Knocks.

And you know, their learning curve can just drastically be reduced. And you get to see the truth of the market, which is-- you know, it's the best measurement of supply and demand there is. I've looked at them all. It the only one that is the true, 100% measure of supply and demand from any point on the chart.

JARED BLIKRE: Yeah, I got to agree here. In terms of indicators, and there's thousands of them-- there's probably 100 on Yahoo Finance alone-- this is probably one of the best that I've seen there. And it's always in my arsenal. If I'm taking a look at a market, always got the year to date, and then I'll plug them in on gaps.

And just-- I'm going to take a second here. Here, since we have this up, I'm going to show you something we can do. We actually have some enhanced functionality. We can plot the-- and I think you go over this in your book-- the standard deviation lines. And we can even put in some shading there. It looks like I got a--


JARED BLIKRE: Yeah, so if we click out of this, you can see the second standard deviation line catching a lot of the downtrend here. And that also tells me the strength of the downtrend. So whether you're hitting that first standard deviation band, the second, and the third, that's something to potentially look at. So there's a lot-- there are a lot of variations on this.

I came on to anchored VWAP as it was presented in the mid-90s. You mentioned Paul Levine, he had this entire Midas method. But then he died in the late '90s, a few years after he formulated this. And it just kind of lost way. And then about the same time, I was in this group, I think somebody else in the group discovered you.

And then you were using anchor VWAP with great success, as well as some other things. We were looking at Weinstein stages. This was in the wake of the global financial crisis, lots going on. But that was-- that was my first exposure to you. Although, I don't think we had any direct communication back then.

BRIAN SHANNON: No, I remember that group. It was--

JARED BLIKRE: Effective Volume.

BRIAN SHANNON: [INAUDIBLE] ran it. What was it?

JARED BLIKRE: EffectiveVolume.eu.

BRIAN SHANNON: Effective-- yeah, exactly, yeah. So anyways, you could look at this chart too, Jared, and there's our new price target. It's $63.03. Because it worked on the down side, it must work on the upside, right? And I'm teasing there, and I'm doing it to make a point. That there's a lot of ways to misuse a tool like this as well.

You know, I've seen people say, Brian, I bought the stock at $30 per share so I set an anchor there. And it doesn't seem to really give me much value here. And the reason that the anchored Volume Weighted Average Price is supported or finds resistance is from key levels, where there's a lot of price memory in the market. It's not about you or me. Because the market doesn't care about where I bought the stock.

So for me to put an anchored VWAP on my price, it doesn't mean anything. We have to go to, OK, the earnings report. That caused a big supply and demand shift. And, for instance, on Meta-- oh, I'm sorry, we're not looking at that chart. So it caused a big supply and demand shift.

And we want to look at where that imbalance-- you know, where there might become an imbalance and a potential turn in the price of the action or where the stock will pull back and find buyers at that anchor Volume Weighted Average Price from the earnings report. That tells us, you know, there's big committed buyers who are looking to pay that average price because they're accumulating a large number of shares.

JARED BLIKRE: Yes, and let's continue to another example. I have Meta here up on the screen, anchoring from the all-time high in late 2021. That's when that peaked out. And we saw these-- some huge disastrous earnings gaps here. I think both of these-- or at least there were a couple that were 25%. And this is just a monster one, from 300 to below 250.

And then we had this other one towards the bottom end of the trading range here. You've set an anchored VWAP-- this is in your charts to me, which I have reproduced here. And we have a potential another squeeze going on here. What do you see in the chart?

BRIAN SHANNON: Yeah, we do have a squeeze or a pinch. I think, actually, Levine called it a squeeze. But what we're seeing here is-- you know when we see a pinch developing, what I really want to see is a real tight compression of energy. And here, you know, the bottom is 126. The high is 196. I'd like to see it drop down to 126, then see that VWAP off the peak come down and meet it at 180, in just kind of a triangle form where it starts to balance out.

But what we saw-- and the reason I wanted to point this out is that that last earnings report, they had some good news in that report, and the stock gapped way up. Well, the stock gapped up. And that day, I pointed out on Twitter-- I said, here we are at the anchored VWAP from the all-time high, after the stock has just doubled in the last six months.

So you have to ask yourself-- you know, when you look at the news, don't-- you know, don't feel that FOMO, and say, hey, the news is great, the stock is on fire, I got to get involved. Instead, you know, ask yourself, where has the stock come from? It just came from $95 a share up to $195, in a short period of time. Where does it have the potential to go before it's likely to find a source of supply that might become resistance? What's that level of interest?

Well, that level of interest was the anchored VWAP off the all-time high. And I said, you know, the risk-reward is terrible here. Don't-- don't be a buyer. And I wasn't expecting it to just fall apart from there. But we've seen, you know, close to a 30-point drop, you know, 15%, uninterrupted. And there's no demand, equilibrium in there yet.

So they give us great levels to say where is that risk-reward, as well as support and resistance, and what might be a reasonable way that the stock might act as certain events unfold?

JARED BLIKRE: Yes. And just to broaden the discussion out, I don't want to throw all other indicators under the bus here. Something that I use is RSI, just because of its simplicity, relative strength indicator. It got overbought and oversold. This actually became just slightly overbought. Looks like the RSI got up to the 80s there as it was approaching this level.

So standard technical analysis, when you have a momentum indicator with overbought and oversold is when you approach overbought into resistance, that's a potential stopping point. And oversold into a key level, that's potential support.

Wondering do you use any other indicators like this? Are just using bar charts to read the price action? And I kind of know the answer to this, but maybe just tell us a little bit about the rest of your methodology.

BRIAN SHANNON: Yeah, great question, Jared. And, you know, if anyone finds value in the relative strength or the MAC-D or the Adam's pitchfork. I always tell people-- you know, they say, well, Brian, should I replace the Apple App with all of these? , No of course not. If you found those to be useful, add the anchored Volume Weighted Average Price to complement the work you're doing and see if it does fit for you.

It's not-- you know, not everyone's going to think it's the best thing since sliced bread the way I do. But to me, it is the best one. It's not what I use exclusively. So the Volume Weighted Average Price, as we know, is constructed of the three most important components in the market-- price, only price pays, volume, it gives us the emotional intensity level, you know, commitment of the market participants, and then time.

And time is a subjective fact. Where do we measure our time frame? Is it-- you know, is it basically swing trader? I'm in the market for a few days to maybe a couple weeks. Warren Buffett, obviously, you know, thinks that what I do is insane. What I think-- what he does, I think he's nuts, especially at his age. He should be day trading.

So anyways, the point, though, Jared is, that time, again, being the most subjective, I do use simple moving averages as well, just as kind of a trend tool to kind of help-- you know, and the point of a moving average is to smooth out price trends.


BRIAN SHANNON: So we can kind of see, you know, where the-- where the-- you know, a cleaner look of the trend. The interesting thing about it is that, you know, the simple moving averages or exponential, whatever you use, it doesn't really matter, the reason that they're used is kind of interesting.

In that we-- you know, most people look at a 50-day moving average, or they look at a 200-day moving average. And, you know, I've done little surveys of groups of people, and said, well, why do you use the 50-day moving average? And they just kind of look around, and, you know, well, that's what I was taught. That's what everyone does.

And that's the interesting thing about technical analysis as well, is that there is a self-- not fulfilling necessarily, but a self-reinforcing component to these indicators and oscillators that comes back to them. But it's based on the psychology of supply and demand. If enough people view the 50-day moving average as a potential support level, well, they'll stop selling their stock as it gets to that level. They'll start to put in bids at that level. Short sellers will stop selling and maybe start to cover.

So all of that underneath the surface is occurring for a psychological reason. Hey, there's typically support at the 50. Well, all those actions, based on different market participants-- long, short, longer-term, shorter-term participants, all around this moving average that people have agreed. You know, it's like the-- history is in an accepted-- what is it-- a collection of lies.

So this is-- this isn't-- this is, you know, an accepted soon to be average that people are looking at to say, let's see how it is compared to that price from that time. And there's nothing wrong with that. I still use it.

But what's more accurate is, now I want to know what's the anchored Volume Weighted Average Price since that earnings report when it touched the anchored VWAP from the all-time high? Because the sellers are in control from there. And as long as it's below the-- that anchored VWAP, well, then I know I don't want to be a buyer because the sellers are still in control, and the shorts are probably still trying to push it down. Maybe they'll close that gap, or whatever it is.

But it's a marriage of traditional support and resistance, even cups and handles, if that's your thing, and stage analysis-- you know, Weinstein, Wyckoff, classic Stage 1, accumulation, Stage 2, markup, Stage 3, distribution, and Stage 4, decline. And then moving them together on multiple time frames for the-- for really good timing, basically.

JARED BLIKRE: Love all this discussion. Getting a little bit wonky here, and that's perfectly fine. That's what we're here to do on "Yahoo Finance Uncut." Want to get your reaction-- I'm interested in what you've seen evolve over the last few years with respect to the retail trader.

We've discussed this a few times before. And the retail trader has been-- if you just started with your stimulus checks in 2020 or early 2021, and you're still around, congratulations to you. Because a lot of traders have been flushed-- and some who have been trading for decades have not done that well. And I'm wondering what kind of questions are you getting now? What's the journey like for newer traders as they're trying to navigate these markets?

BRIAN SHANNON: Well, I think, Jared, that the people who got the stimulus tap right as the market rallied. And, you know, you could see the inexperience of these people, and the emotion that they had, and all their gains, and that. And it was just a recipe for disaster. And, unfortunately, ended the way a lot of market professionals thought it would.

But it doesn't mean that all the professionals did great. I mean, they successfully destroyed Gabe Plotkin and his hedge fund. So, you know, there's-- there's retail money, there's institutional money, and then there's smart money The institutional money doesn't mean smart money. We've seen all kinds of big money do dumb things with their money.

And there's those experienced people who have been around for a while, through a few market cycles. And the thing that keeps them there is that they are able to manage risk. And, you know, the lessons of 2022 that hopefully a lot of people learned, and most likely the hard way, will be lifetime lessons that they learned.

Because I know that, you know, I learned that I had to manage risk because I lost money. I didn't want to be out of business. So I started cutting my losers. And lo and behold, my winners took care of them. And it's just those basic things, like eat less calories and exercise more, and you'll lose weight. Well, same thing in the market. Cut your losers and hold your winners, and you'll be ahead.

So we all learn things-- at least I do, and I think a lot of people we've seen the evidence bear out, learn things the hard way. So, hopefully, again, they're lifelong lessons, in that they have a much healthier respect for risk.

JARED BLIKRE: And when-- I also know the answer to this question, but we're going to go there anyway. I want to talk about how you take in the news cycle, mainly if you don't, how you communicate to your clients and people who have come to you for help just in terms of tuning out a lot of the daily noise that we get in markets.

And it doesn't have to be necessarily news organizations. Fin Twit is just full of advice, both bad and good, probably erring on the side of bad for a lot. So how do-- how do people-- how should people approach the barrage of information that we get on a daily basis?

BRIAN SHANNON: That's really-- I mean, it's really tough. And it's, you know, up to each individual. Here's what I noticed in my own trading, going back 15, 20 years ago. I would have, you know, financial media on, and they would sometimes say something on television. And I would be the guy, who goes, and goes that's a good idea, I'm going to just scalp a little bit out of it. I'll be in and out real quick.

But then the stock falls, and falls, and falls. And I think, well, you know, maybe-- maybe it's on people's delayed satellite, and they haven't got the news yet, I'll buy some more. So I found-- I found I was reacting to news. And I was losing money as a result.

So I said, well, what's the obvious solution here? You've got to surgically remove the-- the problem. So I don't look at financial news during the day. I look at headlines in the morning to kind of see what's shaping the psychology of the market. And I really don't look at much social media during the day either.

Because to me, I have to work in a vacuum. I've-- I've been doing this full time since 1991. This is my 32nd year full time in front of these screens. I have confidence in my process. I have confidence that if I'm wrong, I have the discipline to take those the small loss where I planned I would, rather than hold on and hope something else is going to happen.

So it's-- it's the confidence that comes from hard-earned lessons, you know, being beaten down by the market, learning continually, keeping your mind open to new ideas. Even today, I'll still-- if somebody says, hey, Brian, I created this oscillator, what do you think? You know, most of the time, I'm thinking, well, it's probably nothing that hasn't been done, but I'll take a look.

Because I'm-- you have to have a curious mind. So the-- where were we going with this, Jared?

JARED BLIKRE: Somebody showed you a new oscillator, maybe it was great. Maybe it's not the greatest thing since sliced bread. Indicators are only so useful, but you never know, maybe there's going to be a new one. I don't know, where were you going?

BRIAN SHANNON: Yeah, well, no, I mean, that's-- that's just part of the whole process, I guess. And how we learn, and keeping social media influences and media influences out. To me, it comes from confidence, and knowing that-- you know, you've seen me say it, by this time, Jared, thousands of times, only price pays.

And I say that to myself to remind myself as well. You would think I'd really get it by now, but I have to remind myself. It doesn't matter what Powell says. It doesn't matter what the CEO says. Give it a little bit of time to shake out. Let the market figure it out. And then follow the price action because only price pays. The market doesn't care about my opinion of the PCE, or the CPI, or the PPI, or the earnings report.

So stay focused on price action is how I view it. Because I know if I do it a different way, I typically lose money.

JARED BLIKRE: All right, we've got a few minutes left here. I want to pull up our charts. I have Bitcoin loaded.


JARED BLIKRE: And I thought we could just kind of tackle this in real time. We've got the all-time high from-- I'm going to call this November 9 of last year. So let me just-- I'm going to add this as an indicator-- search for anchored VWAP. And I think I said 11-9-- there we go-- 2021. And maybe I'll put some bands on there too, and some shading, see what that looks like.

And it looks like I got the date vastly wrong somehow. So let me see what I was doing there. Oh, 002, there we go. There we go, 21.

BRIAN SHANNON: So while you're doing that, that's always-- I'm speaking to the audience here-- off of all-time highs, like we did in--


BRIAN SHANNON: --in the NASDAQ. That's always a great place to anchor from. And, you know, we see something really important there that I'll let you talk about, Jared.

JARED BLIKRE: I appreciate that. All right, so we've got some standard deviation bands up. You can see, we're getting down to the second standard deviation here. It looks like it's crowding the price chart a little bit.

But I also want to see where we are off of these lows. So I'm going to put another one, 11-8, coincidentally enough, about a year later. So I'm going to go to add my indicators, search for VWAP. There we go-- anchored, and we're going to put in-- let's use the same date, 2023-- done. And once again, I'm going to have to correct this.

But we get the idea here. And so once-- what are you looking for?

BRIAN SHANNON: No, you want to do '22. You did '24.

JARED BLIKRE: Oh, thank you. I appreciate the real-time error correction here because I do need help. There we go. Just wondering, like when you see something like this, maybe it's what you were looking for, maybe it's not. What goes through your head when you're attacking a new market that you haven't looked at in a while or just for the first time?

BRIAN SHANNON: Yeah, so obviously, like you did, anchor one to the all-time high and see how price [INAUDIBLE]. Why has that been important? And you can see there in April of last year, it kind of fought to that area and tried to-- you know, that battle was fought there. And ultimately, the sellers took-- you know, took back control of that battle.

So what I will do is I'll add-- that was a new regime lower. That's where a new real hard sell off began from. So I'll set another anchor right there, Jared. Because that tells me the trend accelerated from there. And we have a new group of participants who are trapped from-- you know, trying to break higher there. And those people are trapped.

So let's try to understand the cumulative average price from that point forward. And maybe that will give us some indication of what's important moving forward. And if you get that on there, I believe, actually, that the market is battling that right now.

JARED BLIKRE: Yes. You can see it came-- yeah, just about came up and kissed it in later April. And then really came up and touched it in February, late January of this year. And now just kind of breaking above and below, so oscillating around it. It may be in line with that porosity that we were talking about. Got to give it a little bit of wiggle room around these key levels.

BRIAN SHANNON: Yeah, so, you know, it's-- it's-- now I look at it and say, well, if it breaks down and fails from here, where is it likely to catch a bid? And I think down at that 19,463, the anchored VWAP from the low, I think that if it were to drop, that's a place where it's likely to engage in the next important battle.

It's a potential level of support because there should be enough price memory there the short sellers say, hey, let's start to cover some down here. Longs say I want to average in. Fresh money from the sidelines says, hey, it's at that price, let's start to build a position. And then lo and behold, that becomes support again, potentially.

But the key is not to just look at it and say, OK, I'm sticking my bid in at $19,463.50 or whatever that is. But to say that's a level of interest. Maybe I'll set an alert at $19,500, and if that alert goes up then I'll start to look for actual evidence on the shorter-term frame, the way we did with that stock, DT, to see, are the buyers, in fact, gaining control?

JARED BLIKRE: Beautiful. All right, you're-- you're handle, your name, Brian Shannon, comma, CMT. CMT stands for Chartered Market Technician. And I want to tease something coming up in a couple of months, which is the 50th anniversary of the CMT. As an organization, it's worldwide and a pretty diverse group of members.

Not the largest organization, but in terms of the spirit of sharing knowledge and just really being on point about what the message of the group is, what the content is, and being thoroughly up to speed on everything in technical analysis, I've never seen a group of people more generous and more focused with respect to their discipline. Just give me a little bit about why you joined the CMT and some-- some of the things that you've done with the CMT over the years.

BRIAN SHANNON: Yeah, I joined the CMT-- I don't remember when, but I got my Chartered America Technician about 10 years ago, I think. And to me, it was here's a professional designation. It kind of-- you know, if you're a professional in the field, you want the credentials that show people that, hey, it doesn't mean I'm the best technical analyst, just like having a doctor degree on your wall doesn't make you the best doctor. But it says that you've gone through the regimen, and you have a basic understanding of a wide body of knowledge.

And that's what they do, is they expose you to all kinds of things, as you know. Point and Figure, all kinds of-- Candlestick, Elliott Wave, you name it, it's in that material. And you're going to walk away with a curiosity to explore further and say, now I want to branch off into this time frame, or I want to branch off and start to develop my own indicators, or really specialize in the relative strength indicator, and how I can apply it.

And you know, so it's really, as you said, a generous organization. The people that I've met there over the years, going to these symposiums, is just a list of who's who in the money management world.

I mean, it's really amazing that you can just walk up to people that, you know, are your financial heroes, really, for me, growing up, and shake their hand, and talk to them, and learn more, and talk about strategy, and develop new ideas, and form partnerships. And just, it's great for all of those-- the information you learn, being better at technical analysis, and, again, more so the relationships.

JARED BLIKRE: Definitely. Are you going to be in town for it in New York?

BRIAN SHANNON: I am, yeah.

JARED BLIKRE: Excellent. So I'm going to invite you, right here and now, into our studio. We'll do something on "Yahoo Finance Live" around that time period. And I'm personally looking really forward to going.

We got-- we got just a few minutes left. I'm just wondering, could you share maybe an interesting anecdote from back in the day, that maybe exemplifies what trading was like back in the '90s or the early 2000s? Just something that maybe sticks out and would entertain our viewers as we're thinking about heading out here.

BRIAN SHANNON: Here's a kind of funny one, not for the guy who was involved. I used to run a day trading office in Denver. It was downtown. And I think it was probably about 1995, 1996. We had this one customer who just was kind of-- he was just really laid back. And the poor guy just had really poor timing.

In fact, he was one of those guys who, you'd look at him, and go, hey-- we'll call him Keith-- Keith, just bought this stock. You know, and it looks like-- he was a fade, basically. If he bought--

JARED BLIKRE: He contrary indicator.

BRIAN SHANNON: Yeah, pretty guaranteed to go down. You know, we tried to-- you know, it was my day trading office. I wanted to keep him around-- him around as a customer. I'd say, Keith, do you really want to do that and that sort of thing.

He became real stubborn about it so we used to fade his trades. You know, he would buy and we'd sell short. Anyway, one day he bought what was a big position for him, a couple thousand shares of a $50 stock. And he was going to day trade it because he thought he had some information.

And he goes, hey guys, I'm going to go get a muffin down the street. I'll be right back. You want a coffee or anything? Super nice guy, you know, always thinking about others. And, you know, as soon as he left, he was out of range or view of the office-- we were on the ground floor-- news broke the stock was halted. And then in the interim, it gapped down $12 per share.

And-- and then, we were like, oh, my god, what are we going to say to him when he comes back? And you know, we're ground floor, the windows. We see him walking back with his coffee, not a care in the world, just whistling a tune. And he's holding his muffin in his hand.

And the poor guy, he didn't realize he was down like $35,000. He came into the office, and after that he got the nickname "The Muffin Man."


BRIAN SHANNON: That was the most expensive muffin anyone ever bought.

JARED BLIKRE: Yeah, it kind of reminds me of the O'Hare trade, which I'll just go over that real quick. I dont' know, have you heard of the O'Hare trade?


JARED BLIKRE: All right, kind of a legend. And it's been-- I guess there are variations for other cities. But O'Hare, the major airport in Chicago, and down in the CME and CBOT pits, decades ago, people-- if somebody was looking to make a quick buck, or I guess to lose one, they would look for a volatile day. Put on an outsized trade. And maybe with an hour to go, they'd just walk out of the building, say they were going for lunch.

And the pits closed down maybe 2:00, 3:00 PM. So they'd actually drive to the airport and phone the office when the market closed. And if the position closed hugely in the money, because it was guaranteed to be a big winner or a big loser, they'd drive back to the office. And if they didn't, well, they'd step onto a plane and fly to a jurisdiction with a non-extradition treaty with the US. So that is the O'Hare trade right there.

BRIAN SHANNON: That's what the kids call now the Yolo trade, right?

JARED BLIKRE: Yeah, why not? I think we could rebrand that one.


JARED BLIKRE: Anyway, I got to-- I got to promote your book one more time here-- "Anchored VWAP." This is just another spectacular book. Your first book, a legend, and a must for any trader trying to earn their-- I guess, stripes, salt, whatever you call it. But this one, "Maximum Trading Gains with Anchored VWAP, The Perfect Combination of Price, Time, and Volume," by Brian Shannon, founder of AlphaTrends.net.

I can't wait to see you in New York in a couple of months here. So we're going to set that up.

BRIAN SHANNON: Likewise, yeah, definitely.

JARED BLIKRE: Yep. And in the meantime, we're going to bid everybody adieu until next time.

BRIAN SHANNON: Bye. Thank you.