Maximum Trading Gains With Anchored Vwap

The Perfect Combination of Price, Time & Volume Group Buys Bot

Brian Shannon

Audio by Paper2Audio.

Praise

Over the years, Brian has developed strategies to effectively utilize the Anchored vwap indicator into his trading strategies. This book clearly lays out how anyone can combine price, time, and volume to filter out the market noise. Once only used by institutional traders, the Anchored vwap is now available to all investors on more platforms and Brian Shannon is directly responsible for bringing it to the masses.

Thomas Thornton, Founder, Hedge Fund Telemetry L.L.C @TommyThornton

Brian Shannon cemented himself as one of the greatest technicians of all time with his first book, Technical Analysis using Multiple Timeframes. Now, with new technology, tools and data, he's taking an already legendary career to another level. In his new book, Maximum Trading Gains with the Anchored vwap, every trader and investor can learn how to use the Anchored vwap to both profit and manage risk. Brian expertly breaks down these concepts, as well as the simple tools and strategies every market participant needs to understand, regardless of experience or portfolio size.

Be a better investor. Read this book.

J.C Parets, C.M.T President & Founder, allstarcharts dot com @allstarcharts

Maximum Trading Gains with the Anchored vwap provides a simple explanation on how to identify price levels being targeted by large institutional money. Brian walks you through the logic behind his theory and how to implement the strategy using Anchored vwap. This book has given me a new perspective when looking at stock charts.

Chris Worden, President, T.C.2000 Software Company

If you want to identify the next great stock, then understanding institutional accumulation is critical. I remember the first time Brian showed me how he used Anchored vwap to track the institutional footsteps. It was almost as if he used a magnifying glass on the trading activity. This book will give you an edge and teach you how the markets really work.

Irusha Peiris, C.M.T, Portfolio Manager, O'Neil Global Advisors Inc. @irusha

I have known Brian Shannon for years and have been impressed with his clear-headed, structured approach to technical analysis. In his latest book he takes trader education to a new level, elaborating how to make use of Anchored vwap (avwap) and explaining in detail how and why it is a valuable trading tool. Each chapter itself is anchored by specific, practical objectives and charts and examples nicely illustrate the trading ideas.

Particularly insightful is a description of how institutions execute large orders in the stock market and an explanation of how avwap can help traders take advantage of their actions. Also quite helpful is an account of how avwap can help traders exploit breakout patterns and trends. This is a clearly written text that can benefit developing and experienced traders alike.

Brett N. Steenbarger, Ph. D. Author of The Daily Trading Coach @steenb

Brian Shannon takes an esoteric institutional trading tool called volume-weighted average price (vwap) and brings it current for retail investors using an anchoring technique (avwap). He thoroughly breaks down the market mechanics of how large institutions use vwap and why it's important. Then, Shannon presents an expanded set of use cases for the retail trader that builds on the anchoring work of Paul Levine, PhD. The entire book is written in plain English and rooted in a common sense approach that pervades Shannon's cannon of trading tutelage.

Jared Blikre, Yahoo Finance Global Markets Reporter @S.P.YJared

Every now and then, a trader develops a unique analysis for a series of trades well outside of other approaches. The analysis evolves to create a strategy for approaching the markets differently. The avwap maps previously unknown areas of support or resistance for stock prices to trade against.

In an industry with so many varied approaches to the market, Brian's work continues to deliver a logical methodology to establish trade entry management rules. With clear examples, this book will help you refine entries and exits for profitable portfolio management.

Within the broad discipline of technical analysis, there are many narrower topics where investors and traders can focus to try to find an edge. Many of those topics have a “go-to” expert who becomes a “must-read” on the subject. Steve Nison for Japanese Candlesticks, Jeremy du Plessis for Point & Figure, John Murphy for Intermarket Analysis, and Perry Kaufman for Trading Systems. Brian Shannon has become that person for Anchored vwap with his masterful approach that can be used by beginners and professionally alike.

Dan Russo, C.M.T, Portfolio Manager @DanRusso C.M.T

Brian is one of the best in the business at technical analysis. The way he simplifies concepts and explains them is truly remarkable. Traders of all levels will appreciate the ideas presented in this book and can apply them to their trading immediately. This book is a Must have in every trader's library.

Joe Fahmy, joefahmy dot com @jfahmy

There's nothing average about Brian's approach to volume weighted average price (vwap). He is the go-to authority if you're interested in an actionable, clearcut, step-by-step approach to trading with the vwap indicator. But what I like specifically about Brian's approach to trading is that it mirror's his personality: he's unassuming, down to earth, logical, and deliberate in his actions. This book delivers a no-frills, no-fluff, real-world approach to trading today's constantly evolving and increasingly complex financial markets that are largely driven by automated institutional order flow. You won't find any get-rich-quick pipe dream indicators here, just a real-world approach to trading today's complex markets from a real trader.

Todd Gordon, Founder, TradingAnalysis dot com and New Age Wealth Advisors, L.L.C

In my 25-year career as a Floor Trader and Electronic Trader at C.M.E Group, Brian's teachings on how to use an avwap has been the most important tool I've added to my strategy. This book has once again opened my eyes to ways to use avawp that I had not thought of and will be adding some of these new ways to my strategy.

Anthony Crudele, Trader and Host of Futures Radio Podcast @AnthonyCrudele I was at the trading conference in San Diego when Brian revealed his latest contribution to the trading community—the Anchored vwap. I still remember the scene of a few veteran traders hustling over to huddle with Brian after his presentation to learn more. It is an indicator of true trading wisdom. Since this conference, we have taught our traders to use avwap because it works. In fact, Brian has visited our prop firm to teach our traders how to best use avwap. We use it daily. For anyone using technical analysis to make trading decisions, this is an essential trading indicator to build effective trading strategies.

Mike Bellafiore, Co-Founder, S.M.B Capital @MikeBellafiore

Brian is a remarkable trader, who innately understands the value of weighting price action over emotion. But his real talent lies in his ability to explain technical concepts so that they are not only relatable, but actionable. His work here on Anchored vwap, and the potential strategies for its use, will change the way you view markets—and inspire you to become a more profitable trader.

Brian Lund, Publisher, Lund Loop newsletter thelundloop. com @bclund

We all know Brian is the godfather of the vwap, so considering that V.W.A.P's are a major component of my daily charting and technical analysis, I was excited to read his new book and it didn't disappoint. It's a must-read for every trader and investor.

Jonah Lupton, Founder, Lupton Capital @JonahLupton

Brian Shannon empowers readers with the tools to take price and volume data, and draw their own market narratives. Alongside the math, Brian thoughtfully discusses who the market players are and what motivates them to buy and sell when they do. It's a must-read, not just for traders and chartists, but for anyone wanting to understand what makes prices move.

Sam Ro, C.F.A, Founder, Tker. co @SamRo

I'll never forget the day I first was introduced to Anchored vwap. I was at an investing conference, in the audience, watching Brain as he spoke about avwap on stage. Most of the audience (me included) were drooling at the concept. I liked it so much that I later asked Brian for his blessing to deploy a version of it in TrendSpider. It is legitimately a game changing tool, and has since become one of the only indicators I consistently use because it helps me make better trading decisions. If you trade or invest, you should definitely read this book - it will help you understand price, volume and time, and give you a new tool that will help you become a better trader.

Dan Ushman, Founder, TrendSpider @danushman

Brian Shannon has done it again. In his latest opus Maximum Trading Gains with the Anchored vwap, Shannon turns complicated technical analysis indicators into easy-to-use tools for new traders and seasoned vets. With plain language, loads of examples and clear charts, Brian shows you how Anchored Volume Weighted Average Price gets you better trade entries and exits.

Jeffrey Hirsch, Editor in Chief, Stock Trader's Almanac @AlmanacTrader

As a price and volume trader of growth stocks, Anchored vwap has added more value to my trading in recent years than any other concept. avwap shows you the price levels where decisions need to be made. It is the fulcrum in price where we discover who is really in charge, the buyers or the sellers. The concepts and strategies Brian teaches are simple to understand and easy to apply. This book and avwap should be a staple in every trader's library and methodology. It is that powerful.

Tom Canfield, C.E.O BeDumbFollowPrice dot com, @Canny4

I've known Brian for more than a decade and there is no one I know who is better at applying market technicals to continually be in a position to succeed. His ability to quickly change his opinion when he is wrong is something that very few people have and helps him stand out. Dare I call it his superpower? His latest work in Maximum Trading Gains with the Anchored vwap is going to continue to help investors and traders alike; better yet, help our entire industry.

Ryan Detrick, Chief Market Strategist, Carson Group @Ryan Detrick

Brian takes a complex subject in the financial markets and makes it easy to understand through explaining the who, what, why, and how. This book helps readers understand how basic supply and demand principles drive the markets without the need to go through an entire economics course. If you're looking to understand technical concepts in the market and how they can be applied to actual trading strategies, this is a book you will want to have on your desk.

Jake Wujastyk TrendSpider dot com, Founding Team @Jake_ wujastyk

Brian's new book on reactive technical analysis is a great edition to any trader's library. He explains in detail how traders can use the Anchored vwap to create profitable trading strategies. If you're looking for a way to quantify trading price action and increase your odds of profitability, this book is for you.

Steve Burns, NewTraderU dot com @SJosephBurns

Maximum Trading Gains With Anchored vwap

Maximum Trading Gains with Anchored vwap: The Perfect Combination of Price, Time, & Volume

Telegram : @GroupBuys Bot

Olphatrends.NET Publishing L.L.C Copyright 2023 by Brian Shanon.

All rights reserved. This book or any portion thereof may not be reproduced or used in any manner whatsoever without the express written permission of the publisher except for the use of brief quotations in a book review.

Published by Alphatrends Publishing L.L.C, Denver, Colorado (Alphatrends dot net)

Limitation of Liability and Disclaimer of Warranty: This book is not a source of investment advice. All information and any opinions expressed are intended for general informational and educational purposes only.

Although this publication is designed to provide accurate information in regard to the subject matter covered, the publisher and the author assume no responsibility for errors, inaccuracies, omissions, or any other inconsistencies herein. This publication is meant as a source of valuable information for the reader; however, it is not meant as a replacement for direct expert assistance. If such a level of assistance is required, the services of a competent professional should be sought.

Opinions expressed are subject to change without notice. The risk of loss in stock trading can be substantial and traders should carefully consider the inherent risks of investments in light of their specific financial conditions.

Charts courtesy of and produced by T.C.2000, which is a registered trademark of Worden Brothers, Inc., P.O Box 1139 Wilmington, N.C 28402. Ph. (800) 776 to 4940 or (919) 408 to 0542. T.C.2000 dot com

First Printing, 2023

Printed in Canada

I.S.B.N: 979-8-9868680-1-1 It is said that a man's succes is in direct proportion to the kind of woman with whom he shares his life. My wife Leanne brings out the best in me, in my work and my personal life. I am truly blessed to be able to share in all of life's ups and downs with her. I love you Leanne.

Contents

Forward

Preface

Introduction

Telegram : @GroupBuys Bot

Part 1 Foundations

Ch. 1 vwap and avwap

Components of the vwap and avwap: Price, Time, and Volume

Volume Weighted Average Price (vwap)

How vwap and avwap Became Analysis Tools How vwap and avwap Help Traders

Who is in Control? Bulls or Bears?

vwap or avwap?

Ch. 2 Price, Time, and Volume What Is Price and Why Is It Important? Time and Multiple Timeframes Volume

C.H. 3 Institutional Background and Telegra Algorithmic Trading Buys Bot

Why Institutions Use vwap

Personal Psychology and Anchoring

C.H. 5 Anchored vwap Components and Comparisons

Part 2 Using avwap

Ch. 1 Strategy Overview

Remember These Principles

Ch. 2 Support and Resistance

What is Support?

What is Resistance?

How do We Use Support and Resistance?

Market Psychology: Levels of Interest

How Does avwap Play Into Support & Resistance?

Market Psychology: Support and Resistance

Market Psychology: Self-Reinforcing Role

How Would You Feel?

Going Deeper: Slope of the avwap

Market Psychology: Institutions' Role

Ch. 3 avwap Entry and Exit Techniques

Option A: Buy the Touch

Option B: Enter with Momentum

Which is Right for You?

Market Psychology: Price Has Memory, so Use It

Going Deeper: Support and Resistance Failure

Risk Management

Ch. 5 the avwap Pinch

How the Pinch Forms

When to Get Involved Risk Management

Ch. 9 avwap Gap Trading

Four Types of Gaps

Psychology: Don't Focus on Labels

Risk Management: Gap Anomalies

Risk Management: Placing Stops

Ch.10 The Short Squeeze

Short Interest

Part 3 Appendices

About Brian Shannon, C.M.T

Index

Reader Rewards

Forward

It has been estimated that during the year 2020, some ten million people opened a brokerage account for the first time. In the first six months of 2021, another ten million new brokerage accounts were opened. If the statistics are to be believed, then in a span of eighteen months we've seen the start of the investing careers of over twenty million Americans. According to the brokerage firm Charles Schwab, approximately 15% of its 31.5 million retail customers first got into the stock market in 2020. The timing, frankly, has not been great.

While the pandemic gave rise to a generational boom in curiosity about investing and trading, the aftermath has been a punishing experience for most participants. In attempting to estimate the damage of 2022's bear market, JPMorgan Chase researchers have determined that in the first ten months of the year, the typical personal portfolio has fallen by 44%. Among some of the younger, more aggressive traders in this newly arrived class, you can imagine the losses being significantly worse. The anecdotes and chatter make it abundantly clear that we now have millions of people risking their money each day in the stock market while very few of them have any education or strategy beyond reading chat rooms and pressing buttons.

Undoubtedly, in the aftermath of a financial market plunge, people will be out seeking better information about investing. The desire for education always comes after a lot of money has been lost, never beforehand. And that's perfectly normal.

Every generation has to learn for themselves. The stories of veterans or the lessons found in books will never be able to replace the power of firsthand experience with losses.

Many of the new entrants will make the decision that they'd like to do a lot less overall and leave more of their results in the hands of the market gods. These investors will eventually discover iShares and Vanguard, the S.P.Y and the Q.Q.Q. They'll make simpler decisions about asset allocation and let the future take care of itself. They'll buy index funds and pursue dollar cost averaging strategies and find something else to talk about at backyard barbecues now that the desire to trade stocks has come and gone.

But not everyone.

For many, it will become more than just a hobby or a passing fad. The passion to trade and be involved in the markets will be a lifelong pursuit. A daily activity.

In some cases, a calling. Among the generation of 2020's new market entrants, millions of people will find themselves in this category of active trader. And they're going to be on the hunt for methods, strategies and insights that can help them improve what they're doing. They'll be in search of structure and meaning. Actual expertise. Rules. Signal. Clarity.

One can only hope that they'll encounter the teachings of Brian Shannon, as early as possible, upon their journey.

I first became aware of Brian Shannon toward the end of the aughts decade, in the aftermath of the Great Financial Crisis, when I began writing publicly about stocks and investing on my blog. Then, like now, millions of people were in search of good answers about investing and trading. They watched as some of the most storied investment houses on Wall Street had blown themselves to smithereens, having ignored even the most basic tenets of risk management in their own proprietary trading. Was there anyone else out there worth listening to? Worth trusting? The more you'd ask this question of professional traders, the more you'd hear Brian's name. Again and again, the people who knew referred to Alphatrends and Brian Shannon.

Intrigued, I decided to take a look at what all the buzz was about. Brian was popular among traders on social media, but so were a lot of people.

Watching his early videos, made in the infancy of YouTube, you could tell there was something meaningful going on, with all kinds of instruction and narration as the screen flashed upon his latest charts and trading setups. He had an explanation for why he was doing things, and there was a depth of detail going into his decisions each day you simply did not see elsewhere. His work spoke for itself and his popularity as both a teacher and a leader was not surprising.

Brian Shannon is a trader's trader. His influence can be seen and heard among trading communities around the world.

So I had become a fan of Brian's work before meeting him in person. We eventually got together and bonded over a powerful idea about there being truth in price. Honesty in what people actually do in the markets versus what they say they do. Price isn't always right but it is absolutely always the reality of what's taken place that day. Undeniable. So there we were - he, a trader, and me, an investor, working on very different timeframes and behaving quite differently in the markets each day. But we agreed that there is meaning to be distilled from the actual buying and selling of real market participants. Both of us preferred the concept of respecting price as opposed to following our feelings. I eventually internalized and adopted one of his most well known colloquialisms: Only Price Pays. Brian likes to point out that one can obsess over any aspect or dimension of market-watching that they'd like, but, in the end, the price of the stock (or bond, or commodity, or coin) is the thing that will determine how much has been made or lost by every market player. There are no conditions, no asterisks, no footnotes and no do-overs.

In his new book, Brian introduces the concept of the Anchored Volume Weighted Average Price or avwap, an evolution of the work he's been doing for decades. Brian likes to point out that he didn't invent looking at volume weighted average prices for information, but that he has certainly become the vwap's adoptive father in terms of promoting its use as a trading tool. Brian's explanations of this approach to trading, along with over one hundred color charts, will serve as a definitive framework for understanding the three most important components in the market: price, time and volume. His constant emphasis on risk management and market psychology will fill in a lot of the knowledge gaps that so many traders are currently struggling with, regardless of how long they've been working on their craft.

I was fortunate to meet and begin learning from Brian early enough in my career that it's made a meaningful difference in how I think about and process the things I see across my screens each day. I hope he will have a similar impact on the next generation who will be discovering him for the first time as a result of this book.

Downtown Josh Brown

Ritholtz Wealth Management L.L.C

Long Island, New York, October 2022

How I Discovered and Why I Use the Anchored vwap (avwap)

I wrote this book to introduce the Anchored Volume Weighted Average Price (avwap) to new users. For those who are familiar with it, this book will advance new concepts and strategies to help you become more profitable.

Before you dive in, I thought you'd be interested in how I became an expert on this important tool. Here's my "origin story."

In the late '70s when I was about ten or eleven years old, I had a clue that I would do something in the stock market as a career. My father was a doctor and when he wasn't on call we watched Wall $treet Week with Louis Rukeyser on P.B.S. It's on Bloomberg now, but it started out on Maryland Public T.V.

I was a teenager when LoJack made local news for giving Boston Police transponders to help with the skyrocketing rate of auto thefts in the city. With a few years of W dollar W under my belt, I had the bright idea to take all the money I'd earned caddying and delivering newspapers and buy some LoJack stock. At the time it was trading at 5 dollars per share and my dad agreed to go in with me. I turned over my 500 dollars and he bought 1,000 shares. Yes, you're right, he gave me 10 to 1 leverage and I didn't even realize it at the time.

The shares doubled in about three months. From that point on I wanted to be a “stockbroker,” not because I wanted to sell stocks, but because that's the only job description I'd heard for someone who works with stocks and bonds.

After studying business management in college, I started at a firm that is best described as a boiler room operation. The lines out of the Ben Affleck movie Boiler Room were basically our sales pitches, but I didn't want to be in sales. I wanted to buy and sell stocks.

Like most brokers learning the ropes, I moved from firm to firm. No one was teaching technical analysis, they just told you what they wanted you to sell. While I was working at Lehman Brothers, the best producer in my office used the strategy of buying companies that recorded positive earnings surprises and used charts to back them up. That's where I learned to be a salesman, which is an important life skill, but again, not what I wanted to do all day. I'd been reading Investors Business Daily, which had some charts, but I'd still never even heard of the concepts of either avwap or the very closely related Volume Weighted Average Price (vwap).

Denver lured me from the East Coast in 1991 and I had learned about technical analysis and started trading online with a 24k dial-up modem. During the years between 1995 and 1998, I taught a class for the guys in my office on my own methods of technical analysis, even though I still hadn't been exposed to vwap. One day I saw an ad, "Trade with our capital. 20:1 leverage" which intrigued me. I kid you not, the advertiser's name was Generic Trading out of New York. They said to trade their funds you had to have $25,000 and be a registered broker.

In 1993, when I was only 23 to 24, living in a little house with my wife and a new baby. I didn't have much, but I had my brokers license. So I scraped the money together and quit my job. It was a completely foolish decision, but it was also the best decision because it worked out.

I controlled $500,000 in buying power as a trader. The firm gave me almost no support other than a basic quote package. There must have been charts, but I can't remember them. They would have been basic.

They took ten percent of my profits and part of my commissions. Their idea of support was, "Here's how well you did and here's your check."

You might not believe that a young man didn't take big advantage of the leverage, but I couldn't afford to lose money. My $25,000 was really just a stop loss for my firm, not something I was prepared to lose. I made money every month using a strong risk management philosophy that sticks with me to this day: I don't chase things. Risk management is "Job #1" as a trader.

In 2002, I left Generic Trading and worked for MarketWise Securities in Colorado, where I taught technical analysis and trading classes and headed up the proprietary trading department. MarketWise is where I started using RealTick software and saw vwap for the first time. At that time, I saw it as a trendline tool.

Most software charts allowed you to draw a straight horizontal or vertical line. This software had an option to see a vwap line. Instead of going horizontal it would follow the price up (or down) and then hit a point and bounce. “What is that bounce?” I figured out that it was the average price and concluded that something's here that makes people buy (or sell) at the vwap level. I knew it was a measure of market psychology and supply and demand.

RealTick displayed a vwap for only one day and I found a way to get a five-day vwap out of it. I couldn't anchor to the middle of the day or anything else, but started noticing that it was useful anyway. For a long while I would anticipate with it—use it as an extra piece of information to build my confidence on a trade I was already looking at. It wasn't my primary tool then, but was becoming more important. I wanted to know more, like what if I could look at a chart with a vwap for more than five days?

What about tracking at the start of when a company reported earnings 13 days ago? The tool wasn't designed to do that, so I hacked it to see the vwap that way. I didn't realize why it was important, but knew that it was.

That's when I started wondering how I could view vwap similar to a moving average instead of just a horizontal line. I wrote my first article about it in 2005, "Chase the Gap or Wait for vwap."

I continued to track and use the vwap as I moved on to other business ventures, including running a day-trading office. In 2015, when Michael Thompson from the trading platform T.C.2000 asked me to use their software for teaching my technical analysis classes and in my training videos. I said, "If you can create a point-and-click volume weighted average price tool for me that allows me to set multiple starting points and move them around, I'll use your software." A couple of months later, they did.

T.C.2000 called this new feature "Anchored vwap by Alphatrends." Others developed their own versions of the same software features and came up with their own names. I've listed some of these in Appendix C, "Sources for Anchored vwap on Charts."

Introduction How to Use This Book

My goal for this book is to give you a thorough understanding of the vwap and the avwap so you can learn how to interpret market action more accurately. This knowledge will allow you to make better trades.

The typical technical analysis tools to look at on charts are; moving averages, Moving Average Convergence/Divergence (macd), relative strength, etcetera—they're all part of the universal curiosity people have for trying to crack “the secrets” of the market. After three decades, I realized that simplicity is the market's greatest disguise. Simple works. I focus on the current price, the price's behavior over a few different timeframes, a couple of moving averages over different timeframes, the volume, and the avwap. The beauty of the avwap is it represents the absolute truth of the relationship between a stock's supply and demand and it is a 100% objective tool. It may be too obvious to repeat here, but the interaction between supply and demand is the primary determinant of price and the avwap is the best tool to show us supply and demand.

This book has three sections.

Part 1, Foundations of vwap/avwap-It will benefit both novice and veteran traders to start here. This material is the foundation for understanding vwap and avwap. You may be familiar with a lot of the terms and concepts presented, but they have never been presented in avwap analysis. It covers the components of vwap and avwap, how and why institutions use it, how it is calculated, and the psychology of it. This is a fresh approach. The material laid out here is the foundation for the strategy heavy Part 2.

Part 2, Using avwap-This is the strategy section of the book. It is packed with charts and detailed strategies you can use in the markets every day. You will learn how price changes in public markets so you can find the highest-probability, lowest-risk trade ideas suited to your personality, timeframe, and objectives.

We will study examples of avwap where it was a definitive signal to act and also study examples where it provided no value. Nothing works all the time in the markets. Therefore, I emphasize risk management in every example. I want this book to help you to better understand supply and demand in the markets so you can make more money.

There is nothing more accurate than the avwap to guide our analysis objectively. These are the same strategies I use in my daily trading.

Part 3, Appendices-Newer traders who may not be familiar with the foundations of technical analysis will benefit the most from this section. They might even want to read this first to see how the information in the rest of the book fits with concepts I have written about over the last three decades. These are primers on market structure and the Understanding Market Structure Chart (including the market stages of: Accumulation, Markup, Distribution and Decline), moving averages, trend alignment and more. You will also find some reference materials to download and software providers of avwap.

I geared most of the material towards swing trading. Swing traders hold a stock from a few days up to a couple of months. Swing traders attempt to have their money in stocks that are in a longer-term trend, whether higher or lower. When momentum wanes, it is time to harvest profits. Their goal is to leverage time and capital by being involved in the primary trend moves and to avoid the natural trend corrections. When done properly, swing trading attains the goals of steady growth of capital and avoids large losses.

It is up to you whether you want to use technical analysis as a stand-alone tool, combine it with fundamental analysis, or use other methods of trading and investing. I am not here to convince anyone what to do with their money, only to provide a comprehensive overview of the technical tool which has given me the best results. I have written this book in a way that is easy to understand, and I am convinced that you will choose to make the avwap part of your arsenal.

Telegram : @GroupBuys Bot

Brian Shannon, C.M.T @alphatrends

Part 1 Foundations

Chapter 1 vwap and avwap

“If you have knowledge, let others light their candle in it.”

—Margaret Fuller

Telegram : @GroupBuys Bot Chapter Objectives

1. Understand the difference between vwap and avwap

2. Understand how the vwap and avwap are constructed

3. Understand applications of the vwap and avwap

4. Learn how vwap and avwap became analysis tools

Technical analysis indicators are timing tools, of which the vwap and avwap are two. They were created to help us identify the right stocks, at the right time, and at the right price for trading success. Over my 30+ years of trading, I have studied all the popular technical analysis tools at some point, everything from; macd, R.S.I, Stochastics, Kurtosis, Gann, Elliot Wave, and more. A lot of them were helpful, but I couldn't find true consistency in their interpretation. My deep understanding of supply and demand in the market came about in 2003 when I first encountered the vwap. This book focuses on the vwap, and even more so, the avwap.

Components of the vwap and avwap: Price, Time, and Volume

Our study of market action with avwap will begin with a study of the three most important variables in auction markets. Those are price, time, and volume and they are the components which build the avwap.

Price is how we keep score. It is how we determine success or failure; there is nothing subjective about its measurement.

Time is a constant. We cannot change or manipulate it. Time is how we organize market data, and it becomes the most subjective component when you decide where to anchor your vwap starting point.

Volume is a variable that is affected by the decisions of all market participants to buy, sell, or stand aside. At any specific price point or within a price range, the number of buyers and sellers varies depending upon a number of factors. You will learn about these factors in this book.

The study of these market components allows us to glean greater insight into who has control of price action: buyers or sellers, and how committed they are to their respective intentions. Together, price, time and volume, help us to execute more profitable trades.

Volume Weighted Average Price (vwap)

The Volume Weighted Average Price (vwap) is the cumulative average price of a stock traded during one day. The calculation of the vwap begins the moment the market opens, builds throughout the day, and concludes at the close of the session. For equities, users can choose whether to use pre/post market hours in the calculation. The daily vwap resets at the start of each new day.

Because price is weighted by volume, not time, the vwap is the true dollar average for the time period studied. Each share traded (by retail and institutional traders, long and short) receives equal weight in the calculation. The vwap is more responsive to volume trends than price action because of its volume weighting feature.

Accordingly, as volume levels change (pace of trade) throughout the day, heavier volume periods have more impact on the movement of the vwap while lighter volume periods have less impact on the movement of the vwap. The vwap is a straightforward study. There are no settings, adjustments, or offsets to complicate its measurement.

The avwap is the same as the vwap except that the starting point (the anchor) for the volume weighted average price calculation is set by the user at a specific meaningful point; that is, it is not simply the start of the trading day.

When we start the vwap calculation at a point other than the start of the current day, it becomes “anchored” to that first point and we call it an “avwap.” The avwap allows us to measure vwap from any point, on any timeframe, for any interval. The trader chooses a starting point at which to anchor the vwap and once the starting point is so anchored, then from that point forward the avwap calculates the cumulative price and volume of each transaction, the result being elegantly displayed like a moving average along with price.

As you will learn, the “anchor point” is the most subjective part of our analysis. We will explore many valid anchor points to begin our analysis and why we anchor at those points. The avwap broadcasts the message of the market, that is whether sellers or buyers are driving the then-current price trend, more clearly than any other technical tool I have studied in my 30+ year obsession with the stock market.

The book explains in detail the avwap, it's components, calculation, how to choose the anchor point, avwap strategies, and how you can use it to increase your profitability.

There are two vwap lines in Chart 1.1, the first one (light blue) is anchored to a large price movement event. Because it starts at a point other than the beginning of a new day, it is an avwap. The second one (dark blue) begins with the new day, this is the traditional vwap calculation.

Chart 1.1 summary: A price chart showing two different Volume Weighted Average Price (VWAP) lines. The traditional VWAP (red line) resets at the start of a new trading day, while the Anchored VWAP (blue line) is set to a user-defined starting point. The chart demonstrates that because the two lines are anchored at different times, they produce significantly different values, illustrating how Anchored VWAP allows for more flexible analysis of price trends.

How vwap and avwap Became Analysis Tools

The vwap and avwap have morphed from benchmarks of execution measurement into technical tools that are used by market participants in all timeframes to assist in trend recognition and timing of buy and sell decisions. I first noticed a “vwap” on the trade platform RealTick in 2003. At that time, the only way to view vwap was from the start of a new trade day. I found I could change the number of days to view the cumulative vwap for as many days as I wanted and this allowed me to choose the day where I could set my anchor.

This “hack” allowed me to experiment with the week-to-date (W.T.D), month-to-date (M.T.D), and year-to-date (Y.T.D), as well as from gaps and even I.P.O's. vwap analysis immediately fascinated me and, more importantly, I started to make more money in my trading with it. I was hooked by the possibilities of avwap analysis. It remains my most important technical analysis tool to this day.

It wasn't until 2015 that a major technical analysis platform (T.C.2000) added"Anchored vwap by Alphatrends" to their excellent chart platform. This was a significant breakthrough for its simplicity and the ability to point and click the anchor from any point on the chart, on any timeframe. From that introduction to the trading world, there have been several chart applications that have added the"Alphatrends Anchored vwap" to their platforms.

I am truly grateful that the trading world has embraced the value of avwap analysis and am humbled that my efforts have made it possible to access the Anchored vwap on many great chart platforms. See the list of chart platforms with avwap in Appendix C, "Sources for Anchored vwap on Charts."

How vwap and avwap Help Traders

The way the avwap combines price, time, and volume into one easy-to-understand indicator gives us a blended view of whether it is the buyers or sellers who are in control. This also applies to the vwap, but for purposes of this book we are generally focusing on the avwap.

This valuable information allows us to better understand market structure so we can:

• Identify low-risk, high-probability market and individual stock opportunities.

- Time our entries into the market and individual stocks more accurately.

• Stand aside through periods of uncertainty.

- Cut our losers early based on objective recognition of price action.

• Hold our winners longer.

• Exit our winners more efficiently.

In short, avwap is a tool which can help any timeframe participant (from daytraders to longer-term investors) make better market timing decisions and achieve greater market profitability.

On a chart, the vwap is represented as a line along with price. The way it builds with each piece of data allows us to recognize nascent trends. In the chart 1.2, on the left it shows that buyers are in control of the daily session while the stock is above the ascending vwap. The chart on the right shows that the sellers maintain control while prices are below the declining vwap.

Who is in Control? Bulls or Bears?

The avwap shows us the genuine relationship between price and volume over any period. Which side is in control and gaining or losing control of the trend, buyers (bulls), or sellers (bears)? Our job is to “objectively listen to the message of the market" for the timeframe we wish to engage in our trades. The avwap provides as much certainty as we can hope for in the study of price action.

We can measure avwap on any security or market where price and volume data are available. That includes individual stocks, E.T.F's, futures contracts, cryptocurrencies, and Forex markets.

Chart 1.2 & 1.3 Two-minute candles for a stock in an uptrend (left) and down-trend (right) for one day. Charts: T.C.2000 dot com

Chart 1.2 & 1.3 summary: A candlestick price chart with a Volume Weighted Average Price (VWAP) line and directional arrows. During the first day, price action stays above a rising VWAP, indicating buyers are in control; during the second day, price action falls below a declining VWAP, indicating sellers are in control. The point is to illustrate how the relationship between price and the VWAP line signals market control.

vwap or avwap?

Do not let the terms vwap, avwap, and “vwap anchored from” confuse you. In this material you can assume that any reference to vwap on its own is for one day. If it says avwap it refers to Anchored vwap and we might also say “the vwap from” which means “from the anchor point” and that makes it an avwap.

There are dozens of technical indicators that we can choose to use in our analysis of stocks and other markets. The vwap and ability to anchor it from key price points as an avwap is the most accurate visual representation of who is in control of the market from any specific point. At first glance, the study and implementation of an avwap may seem complicated, but it is a simple study anyone can learn and easily apply to their market analysis and decisions, regardless of timeframe. By the time you have read this book, you will recognize the ways the avwap simplifies how to observe and more accurately analyze market action.

Chapter 2

Price, Time, and Volume

“Time and tide wait for no man.”

Telegram : @GroupChaucer

Chapter Objectives

1. Understand why price is the most important piece of information in the market

2. Understand how price creates new information

3. Debunk news media “reasons” for price movement

4. Understand that bull and bear labels are meaningless without reference to timeframe

5. Identify uptrends and downtrends based on the direction of the highs and lows

6. Understand how trends are formed and why you should trade with them

7. Understand the difference between a price correction and a time correction and their implications for trend continuation

8. Understand the deeper meaning of what volume tells you about a stock

9. Learn how to add the volume of a sphere to our avwap analysis.

10. Understand the importance of price, time, and volume

When you build a puzzle, you start with the easiest pieces first: the edges. The edges frame the foundation of the picture. You work from the edges to the next obvious parts like a bright object, oddly shaped pieces, and so on. Slowly, more of the structure of the scene reveals itself and the pace of progress quickens until you lay in that last satisfying piece to complete the puzzle.

The components of vwap are price, time, and volume. These are the “edge pieces” in our study of market action in search of the next big winner. On stock charts, price, time, and volume come together in a way that allows the trained eye to objectively identify whether buyers or sellers have control of a stock's trend, from any start point. From there, we can build our trade plan to find the lowest-risk, highest-probability trade opportunities on any timeframe.

Image summary: A Venn diagram showing the intersection of three circles labeled Price, Volume, and Time. The central area where all three overlap is labeled AVWAP. The diagram illustrates that the Anchored Volume Weighted Average Price (AVWAP) is a combination of price, volume, and time data.

Perfect Combination of Price, Volume & Time

What is Price and Why is it Important?

We define price as an amount of currency that will purchase a finite quantity, weight, or other measure of a good or service. In the markets, it represents the price where the last transaction occurred. It is said, “don't confuse price with value.” Nowhere is this truer than in the markets. Price is the fastest moving market variable.

Price Creates New Information

Price reflects the aggregate of traders' strategies and expectations about the market's future behavior, and, as a part of that, the current news headlines and events which affect our economy. It also creates new information. When prices change, it can cause others to enter or exit the market based solely on that price move. That is what technical trading is all about.

Price as Cause and Effect

In a supply and demand driven market, also known as a “liquidity market,” price change is not only the effect of participants' actions, but it can also be the cause which motivates participants to act.

The Most Important Price Group Buys Bot

Whether we gain or lose on a trade is based solely on the movement of price. There is no other meaningful measurement of success in the markets. It is all about your profit and loss, “your P&L.” If you have a position in a stock, the most important price is what you paid and how the market has responded since you got involved.

Time and Multiple Timeframes

Without any other reference, a simple statement such as, “I will call you at nine o'clock,” has little value. Is that A.M or P.M? Which time zone are we talking about, what day, this week? In the markets, time and trends can also be ambiguous. When people say they are bullish or bearish, those pronouncements have little value without a reference to time.

Chart 2.1 This daily chart shows an overall “bullish uptrend” with “bearish periods” on the pullbacks. Chart: T.C.2000 dot com

While it may make sense to say to a friend or business associate, “I will call you at 9 p.m. next Tuesday,” in looking at market trends we cannot be so precise with our bullish or bearish labels because trends may conflict on different timeframes.

Chart 2.1 summary: A candlestick price chart showing a series of price fluctuations over time. While the price experiences several temporary declines, labeled as short term pullbacks, a green arrow indicates a consistent upward trajectory over the entire period. The point is that short-term volatility does not change the overall longer term uptrend.

If you were to ask if the stock in Chart 2.1 was in an uptrend or a downtrend, either answer could be correct. It depends on your timeframe. The longer-term trend is clearly higher (as represented by the big green arrow) but it doesn't mean you could just buy at any point and make money. If you purchased at the start of the smaller red arrows, that mark short-term downtrends, you wouldn't benefit from the longer-term uptrend until the trends came into alignment.

Why and How to use Multiple Timeframes

We have established that multiple trends exist for the same stock on different timeframes. The best approach is to use the timeframes together. When we do this, we avoid the confusion of bull or bear labels so we can focus on how the market operates and how to make more money.

First, we start with the long-term timeframe to determine overall money flows. Next, we move to the intermediate-term to plan our trade. Finally, we consult the short-term chart to fine tune our entries and exits.

Chart 2.2 blends three timeframes for the same stock. Look at the bottom axis for the time reference. We start with the long-term timeframe (three months) to determine overall money flows; we then move to the intermediate-term (three weeks) to plan our trade; and finally we consult the short-term chart (one-day) to fine tune our entries and exits.

Chart 2.2 summary: Three candlestick charts of the same stock shown at different timeframes: daily, 30-minute, and 5-minute. As the timeframe shifts from daily to 5-minute, the view zooms in from a three-month period to a single day, revealing more granular price fluctuations. The point is to demonstrate how the same asset's price action appears differently depending on the chosen time resolution.

Now let's look at the price action in Chart 2.2. To the left are daily candles, with the shaded portion highlighting the last three weeks. When we switch to a shorter timeframe it allows us to see more detail of the longer timeframe, like looking through a magnifying glass. The three weeks referenced in the middle chart are shown in more detail: 30-minute candles instead of daily candles. This middle chart's data is a closer look at the data shown in the blue-highlighted portion of the leftmost chart; however, the middle chart shows activity at 13x magnification (there are 13 30-minutes periods per trading day).

The blue shaded part on the middle chart is further magnified on the one-day chart on the right. The activity on the one-day chart is displayed in 5-minute candles instead of the 30-minute candles in the middle chart. If you look closely, you'll notice that this final chart shows only the last day of the left chart. Since the one-day chart is constructed of 5-minute candles, of which there are 78 in each 390-minute trading day, it is like looking at 78x magnification of the left daily chart.

Telegram : @GroupBuys Bot Volume

Volume is the “V” in the vwap. Volume simply measures the number of shares (contracts, options, and the like) transacted at a price or in a price range for various time increments. Vertical bars display trade volume under the price information. Volume is used to confirm or reject price direction, not as a timing signal.

When we learn to interpret the price/volume relationship correctly, it allows us to better gauge the strength of a trend and thus, greater confidence in our own decisions to buy, sell, or stand aside. Here are a few ways volume is important to our analysis:

- It assigns meaning to movement, measured in a more subjective, but more in-depth manner than price action alone.

- It offers insight into market psychology; it allows us to measure the emotional intensity level of the participants in the market being studied.

- It adds a dimension to price study that can confirm price action or signal caution that a move may have difficulty sustaining momentum.

Chart 2.3 Price and volume over a several month period. Each volume bar measures the total amount of shares which changed hands for the period it took to build the price candle above it. Chart: T.C.2000 dot com

The traditional way to show volume is directly below the price action. Chart 2.3 shows the volume color coded to the candle above. The green volume bars represent the candles where the daily market closing price was higher than the opening price and the red volume bars represent the days where the closing price was below the opening price.

Chart 2.3 summary: A candlestick price chart with a corresponding volume bar chart below it, spanning from February to November. The price shows a general upward trend, accelerating sharply from August through November. The volume bars are colored green when the closing price is higher than the opening price and red when it is lower. The overall takeaway is a strong bullish trend in price accompanied by fluctuating trading volume.

Price and Volume Relationship

Volume is the best representation of how committed participants are to a market at any point. A healthy market move will see volume expand in the direction of the primary trend, peak near turning points, and diminish on the counter trend moves.

High-volume (relative to normal trading activity) can signal times of stronger confidence in a move, while low-volume times are often a healthy pause as the market digests a price move and traders consider their next trades.

A drop in volume in an uptrend is not always bearish. It is often a simple lack of supply in a stock with healthy demand. We want to be aware of the volume trend, but if it doesn't confirm price action with a volume expansion in the direction of the trend, it is not a reason to act, just something to be aware of. The purple line overlaid on the volume bars is the 20-day moving average.

Volume does not have to continue to rise to support an uptrend.

Feb Telegram : May @ Group Buys_Bot

Chart 2.4 summary: Two aligned charts showing price action as candlesticks and trading volume as a bar chart. While the price chart shows a clear uptrend indicated by a green arrow, the volume chart shows a general decline in trading volume over the same period, indicated by a red arrow. The point is that price can continue to rise even if trading volume falls.

Volume is Always Second to Price

Volume analysis can supply us with important information about the conviction of the buyers and sellers in a market. It is important to remember that volume is always secondary to price, as in the end, price is the only thing that pays. We now turn to how institutional investors use vwap and avwap concepts.

Chapter 3

Institutional Background and Algorithmic Trading

“Stocks never go up in price by accident – there must be large buying demand. Most of this demand comes from institutional investors, who account for more than 75% of the buying of the better quality, leading stocks.”

Chapter Objectives

1. Understand how and why institutions use vwap and avwap

2. Understand institutional orders

This chapter delves into how and why the vwap became, and remains, so important to the largest participants in the market, institutional investors. If we know how institutions use vwap as an execution tool, we have a better understanding of how to apply it as an analysis tool for our benefit. When we can recognize the actions of the largest market participants on a chart, we can join in on emerging trends in individual stocks and the overall market.

Telegram : @GroupBuys Bot Why Institutions Use vwap

The Volume Weighted Average Price (vwap) was first referred to in March of 1988 in The Journal of Finance article entitled “The Total Cost of Transactions on the N.Y.S.E” by Stephen Berkowitz, Dennis Logue, Eugene Noser Junior. This is essentially when the vwap was “invented.”

In the article, the authors stated that “The volume weighted average price on any day represents the price a “naïve” trader can expect to obtain.” This article ignited the study, analysis, and implementation of vwap strategies, which continues to be developed to this day.

Originally, the vwap was a benchmark to measure whether an institutional customer received a fair execution of their order by the broker who bought or sold a stock on their behalf. The difference between the reported price of a trade to the institutional customer and the vwap let the customer objectively determine if their broker did a fair job in the execution of their order. The customer wants to know if they received “fair-value” for the time it took the trades to complete.

A portfolio manager wants to know how the price they paid compares to the average price of the stock during the time it took for the order to fill. If an order is filled at a price worse than vwap, it brings into doubt the trading ability of the broker and may cause the manager to reevaluate the relationship and give their lucrative commission business to another firm.

Institutional Benchmark Example

If the broker purchased 2 million shares at an average price of 20 dollars and 45 cents and the vwap during that time was 20 dollars and 60 cents, then the customer should be happy they paid 15 cents per share less than the average transaction during that time. If, however, the customer order was purchased at 20 dollars and 80 cents when the vwap was 20 dollars and 60 cents, the customer would be unhappy with the broker. No one wants to pay more than the price a nave trader can expect to obtain. Customers give more business to firms who consistently do well for them, which means bigger revenues and bonuses at year's end. This objective measure aligns the goals of the broker and their customer.

This easy-to-understand benchmark comparison is why algorithmic vwap orders make up most institutional activity. A large percentage of institutional orders in the markets today are executed as “vwap orders.” These orders try to obtain a buy or sell price as close to, or better than vwap during the time it takes to complete the buy or sell order. Most brokerages allow their customers to receive a “guaranteed vwap” price for their orders. These orders reinforce the importance of vwap, and thus avwap, through volume participation algorithms.

Volume Participation

Since large blocks of securities are rarely bought or sold in one single transaction, the true aim for a large vwap order execution is not the best price, but liquidity; the goal is to make sure the order gets filled in the time allocated with minimum market disruption. The time to fill the order is irrelevant, it can be a large fund buying millions of shares of a stock over a month, or a longer period, or it could be an order to sell 250,000 shares of a stock between noon and the 4 p.m. close. Market direction is not an actual concern for vwap order algorithms, the goal is to take part in volume proportionately through the day (or whatever the period) it takes to execute the order in full.

Algorithms

We often hear traders mention “the algos” in a stock. This refers to the automated buy and sell programs run by large institutions. A trading business will try to squeeze performance and margins anywhere possible; it's about being efficient. The pursuit of efficiency in the markets has led to the development of computerized models to remove some variables where humans might not do as good a job as a computer. Trading can be tedious for a person; a computer can refresh or change bids for offers with no human interaction. Sometimes, to complete a single order, it might take hundreds of individual trades to fulfill it. Computers do not get tired, and the algorithms do what they are programmed to do without mistakes.

Institutions do not want to disrupt the market with large orders, so their algorithms slice a large order into smaller orders. The smaller orders also mask the true size of their order from other market participants. This is important so that their orders are not front run (cut in front of) by other participants. These programs reduce market impact cost, which, of course, help increase performance measurements.

Market Impact Cost

Market impact cost is the effect a market participant has on the price of the asset it is trying to buy or sell. If a stock trades 1 million shares per day on average and you try to buy or sell so many shares that they constitute a large portion of the average daily volume of those shares, those buy and sell orders are likely to move the price of the stock. The pressure your buy order places on the supply and demand equation can cause an adverse price move, which forces you to buy at a higher price than intended. The same is true for a large sale of a stock. Your own sell orders have the potential to push the price lower, which makes your average sale price lower than intended. vwap trading algorithms attempt to minimize overall costs by reducing the market impact cost of the execution of a large order.

Market Impact Cost is Reduced By:

The amount of time over which the order is spread, as well as the intervals.

• Breaking large (parent) orders into smaller size (child) orders.

- Opposing buy and sell orders with different brokerages.

Different Institutional Goals

The focus of the strategies in this book are vwap based trend trading and momentum, but it is important to recognize there are other strategies implemented every day by other style and timeframe participants. Some institutions buy more shares of a stock if it is under the vwap because they perceive it has value relative to the average participant price that day. These same buyers will then sell shares into the stronger demand for shares when the stock is above vwap since, by doing so, they receive a “premium” over value during that period.

As a group, institutions are as diverse in their strategies and timeframes as “retail” traders. There is no one strategy that fits all. It is not just as simple as saying “institutions buy below vwap.” It may be the goal of a “value” institution to make their purchases while stocks are below vwap, but a momentum fund might try to juice a trade in which they have a long position in order to induce others to buy the rising stock and create further upside momentum. As we will show in Part Two, Chapter 10, when we discuss short squeezes, buyers will sometimes become very aggressive about their purchase, hoping to inflict pain on trapped short sellers.

Parent and Child Orders

Large market participants do not want to tip their hand and reveal to the market that there is a big buyer or seller present. They need to disguise their orders to reduce “information leakage.” To disguise a large order and avoid having their orders front-run and reduce their market impact cost, large (parent) orders to buy or sell an individual stock get broken into smaller (child) orders.

A study of vwap trades executed by the International Trading Group discusses this point in detail. “The sample size is 243,772 parent orders. The algorithm executed 13,468,847 child trades, meaning that on average each parent order turned into 55 child executions.”

In his testimony to Congress in 2021, Ken Griffin, the C.E.O of Citadel Trading stated, “Today, virtually all trades executed by institutional investors are in the form of program trades, such as vwap and other algorithm trades.” According to their website, Citadel Trading “executes approximately 35% of all U.S.-listed retail volume, making us the industry's top wholesale market maker.”² Griffin said “vwap trades are not large trades, it is not like there are 10 million shares to be bought, it is a trade that is sliced into small slices (100 or 200 shares) and executed over the course of a day, a week or a month.” I emphasized Mr. Griffin's words about timeframe because they show directly that vwap orders are not just for one day, they are also used for larger trades, which can take days, weeks, or months to execute. Remember this point when we study how longer-term vwap levels will often act as support and resistance levels.

Example: Large Institutional Sale Order

Let's consider a situation where a mutual fund owns 3% of the total outstanding shares of a stock. For whatever reason, they want to reduce their position size by half. If there are 500 million shares outstanding, they own 15 million shares and would have to sell 7.5 million shares of the stock to sell half of their position. Let's say this stock trades 2,000,000 shares per day. If the fund dumped all 7.5 million shares of the stock on the open market, they would flood the market with close to four times its average daily volume with this transaction alone.

A sale of this magnitude would cause a huge imbalance in supply and demand, and the stock would drop considerably to find enough liquidity to fill the order. A "sloppy" sale like this would cost the fund a lot of money and hurt their performance.

Rather than dump their stock all at once, it is more likely the fund would contact their broker and let them know they have a large block of stock to sell. The broker may choose to purchase the stock directly from the customer at a negotiated price. The broker would then sell it over a period which would allow the large supply to be absorbed into the market more easily. In this scenario, the broker takes the risk of selling the stock, and they could probably purchase the 7,500,000 shares at a discount to the current price. The discounted price given to the fund is to compensate the brokerage for taking on the price uncertainty and associated risks during the time it would take them to liquidate the stock.

If the fund was not inclined to accept a discounted price of the shares in return for the transfer of the risk as well as for the immediate liquidity created were the broker to buy all of the 7,500,000 shares, the fund may instead hire the broker to sell the stock using a sophisticated vwap algorithm. In this scenario, the fund may decide to have the brokerage execute the order over the next 30 trading days and approximately 125,000 shares would get sold per day (just 6.25% of the average daily volume); a number that the stock would be better able to handle rather than a sale of all 7,500,000 shares at once.

Time Slicing

Even with the liquidation of just 125,000 shares per day, there are certain precautions the broker will take to ensure they do not cause a disruption in the market that would impact their efforts for a fair price. Just because traders generally will accept the price a “naïve” trader would expect doesn't mean traders are dumb. The broker will not simply sell 125,000 shares at one point in the day.

Instead, this is where “time slicing” of the order comes into play. The broker considers the average daily volume of the stock for the number of days it expects it would take to liquidate the order in full. In our example, they might consider the 30-day average volume. Once they assess that there is sufficient liquidity to handle their 125,000 shares per day, they would then consult a volume distribution chart of the stock over narrower timeframes.

It is common to see this “U-shaped” curve in the markets, with the heaviest volume in the first and last hours of the day. This U-shape pattern occurs in the broad indices and in individual stocks. The typical day experiences a volume surge in the morning, a midday slowdown, and a larger volume into the close.

It is like a runner who starts a race quickly, settles into a sustainable rhythm, and then tries to finish the event with everything they can. Because of volume participation orders, the programs reinforce this U-shaped pattern. Not all institutions will use the same time periods, they may be 5-, 10-, or 15-minute periods, or any time equally divided by the 390 minutes in a trading day.

To achieve a price execution as close to the daily vwap as possible, our institution would carve their 125,000 shares per day "parent" order into several "child" orders. Let's say the first 5-minute period of the day, the stock typically trades 2% of the full daily volume. The institution would then sell 2% of their 125,000 share order, that is, 2,500 shares in the first five minutes of the day. By using a time increment, the institution executes a larger portion of their order at the most liquid times of the day, and they sell fewer shares during the less liquid times of the day. Participation in a small portion of volume during each period makes it less likely that other traders will detect the broker's selling activity, and even less chance that the broker's sales would be harmful to the average price the stock trades through the day.

Institutional orders may take place all day or during a time slice of the day. vwap orders are set by: duration (buy or sell over a portion of the day, full day, week, month, or other relevant period), price limits, volume percentage limits, or other pertinent criteria. There is no standard time increment for a vwap program to slice its orders. It is up to each institution to choose how granular they want to be. An example of a shorter-term vwap order could be “buy 250,000 shares of A.A.P.L from 1 to 4 p.m., pay no more than 0.25% above vwap and don't constitute over 10% of the volume.”

Often, the brokerage firm does not know the true intention of the customer they represent on a transaction to buy or sell. In fact, customers often use multiple brokers to avoid the market's knowing their true intent. It is not uncommon for a net buyer of a stock to give sell orders at certain levels with competitive algorithms that drive the price back down to vwap, where they have a larger buy order ready to be filled.

Chart 3.1 summary: A volume distribution chart using 5-minute candles to show trading activity over one day. Volume is highest during the morning surge and the end of day surge, with a significant dip in activity during the middle of the day. The takeaway is that trading volume typically follows a U-shaped pattern throughout the day.

What About Dark Pools?

Dark pools are private exchanges designed to facilitate block trades between institutional investors. These transactions are not reported to the exchanges in the consolidated tape, which can be a criticism of vwap analysis. The volume on dark exchanges is generated by funds who swap large positions with other institutions at a negotiated price, and are not buys and sells that effect price change. If we don't see these transactions and neither do other participants who look to volume for directional clues, does it matter? Does a tree make a sound when it falls in a forest?

The fact is, we never have the complete picture of who or why someone transacts in a stock, if their position is hedged, or if their trade is part of a more complicated strategy. Risk is ever present in the market and one risk is a lack of complete information. We must make certain assumptions in our analysis, which is why risk management is always at the cornerstone of any strategy we implement.

Even Warren Buffett Uses vwap

Chart 3.2 shows how Warren Buffett sold his entire position in Southwest Airlines over a two-day period. The reported price he received from the sale of his 2.3 million shares was $32.22, which was the exact vwap for those two days. It is likely that Mr. Buffett negotiated a “guaranteed vwap” price for his sale with the broker.

Chart 3.2 summary: A candlestick chart showing the price action of Southwest Airlines (LUV) over two days using 2-minute intervals. The price generally trends downward from approximately 34.00 to 31.00, with a note indicating that 2.3 million shares were sold at an average price of 32.22. The overall trend depicts a steady decline in the stock's value over the period.

Looking at the chart, it doesn't seem like the broker made money on this order since, for most of the time, the stock traded below the declining vwap of the time it took to fill the order. Warren wins again.

Now that we have made it through this tedious section with a solid introduction to how institutions use vwap in their daily business, we can move forward to the more useful aspects.

Chapter 4

Market

Sentiment Tools, Psychology, and Anchoring

“If you do not know who you are, the market is an expensive place to find out.” —Adam Smith

Chapter Objectives

1. Define market sentiment tools

2. Recognize avwap as a market sentiment tool

3. Understand how your psychological makeup impacts your trading

4. Understand the anchor bias and how we relate it to our trading

In the prior chapter, we discussed several aspects of how institutions accomplish their trading goals and how their trading creates an impact on the market. While institutional traders and their trading strategies have a large influence on the market, they are not the only influence on the market. Less tangible but very important factors are the psychological and behavioral motivations of all traders. We now look at some of the micro (you) and the macro (the market) psychological and behavioral factors that effect trading.

Your mental makeup, how you handle stress, and how you think about and manage risk are all important components that will matter more to your success than any system or perceived edge you bring to the market.

Behavioral finance attempts to understand financial decisions through the combined analysis of psychology and investing. It is the study of how human and social-emotional biases can affect price behavior and how to measure it. As with any market measurement, the goal is to gain insight to increase profits.

Any discussion of “market psychology” can sound intimidating at first, but we do not have to possess an advanced degree to understand what drives market behavior. Instead, we need to have some commonsense psychology. Look at any chart and imagine how you would feel if you were long, short, or in cash. As we analyze multiple timeframes and use tools like the Anchored vwap, we gain a greater sense of market psychology.

1 O'Hara, Maureen, "High Frequency Market Microstructure," page 8

2 https://www.citadelsecurities.com/products/equities-and-options/ Accessed November 8, 2022

Market Sentiment

“Market sentiment refers to the overall attitude of investors toward a particular security or financial market. It is the feeling or tone of a market, or its crowd psychology, as revealed through the activity and price movement of the securities traded in that market. In broad terms, rising prices indicate bullish market sentiment, while falling prices indicate bearish market sentiment.”

Sentiment attempts to quantify a nebulous concept of the collective psychology of the market participants. While quantitative studies measure facts about price behavior, we can think of sentiment as “opinion mining.” Market sentiment represents the mood of the market, bullish or bearish. It tries to measure crowd psychology. The market does not care about the opinion of an individual. It is the cumulative opinions and actions of participants and price movement that matter.

Why are we Interested in Market Sentiment?

Crowd behavior determines how and why trends begin, continue, stall, and reverse. People are more alike than different and that is certainly true in the markets and in what drives our emotions to buy and sell. If we understand the individual factors that motivate the crowd, we can put our personal biases aside, anticipate crowd behavior and plan our trade around their actions.

There are things to be aware of in the market that do not always equate to a reason to buy or sell. Seasonal tendencies, and extreme bullish or bearish measurements are good to be aware of, but they play a minor supportive role to price action. The goal of sentiment measurements is to gain insight into the psychology of the other market participants in order for you to find an edge and determine whether they may be buyers or sellers of the overall market or individual stock.

Traditional Sentiment Measures

There are no shortages of traditional measurements of market sentiment. Some of the popular ones such include the C.B.O.E Volatility Index (V.I.X), the N.Y.S.E 52-week highs versus lows, The N.Y.S.E Bullish Percentage, the percentage of stocks above or below a 50-or 200-day moving average, Investors Intelligence Sentiment Poll, and others. More recently, data from social media messages on Twitter and StockTwits or Google searches can be used by “smart algorithms” to assess the mood of the market.

Markets are Not Always Logical and Rational

Sentiment can change for events that seem unreasonable (or lack a reason), but there is always a reason for price change. We simply aren't always privy to the "news." This can be a source of frustration for many market participants.

Emotions and biases influence traders and investors, but they also blend with rational thought processes. Human biases are a significant reason that algorithmic trades have become the dominant source of buying and selling in our markets. Humans make mistakes and act on impulses and emotions; algorithms are designed to minimize human errors.

It is easy to get bogged down in the intellectual aspects of markets and trading in order to gain an edge but, as we know, only price pays. This brings about the need for an objective measurement and Anchored vwap serves that purpose because the avwap can simplify and help us distill or quantify the market sentiment by allowing us to measure the result of all of the sentiment-influencing biases, news and behaviors, rather than obsessing over those factors.

“In the short run, the market is a voting machine, but in the long run it is a weighing machine.”

Telegram : @GroupBuys Bot Personal Psychology and Anchoring

Before we attempt to understand the behavior of crowds, we need to begin with an assessment of our own mental inventory and the factors that influence the decisions we make in the markets. The market does not care about our individual opinions of price action or when we buy and sell. It is the collective actions of the participants (both by humans and by the algorithms programmed by humans) that create crowd psychology.

“I fear not the man who has practiced 10,000 kicks once, but I fear the man who has practiced one kick 10,000 times.”

A few of the personal factors that play into individual financial psychology include age, timeframe, risk tolerance, funds available, time available to commit to the markets, whether you are a fast or slow thinker, and others. One of the first goals of any market participant should be to find a combination of: 1) an approach or strategy and 2) a timeframe, which together fits your personality. These two critical pieces of the puzzle are often overlooked, as people jump from style to style without ever committing to one. Always be curious about alternative approaches, but try to become a specialist in just a few setups, developed from your experience in trading as you follow an overall plan that suits your personality, so that you can consistently profit.

Anchoring Bias

Daniel Kahneman is a psychologist and economist who won the 2002 Nobel Memorial Prize in Economic Sciences. One of the investor biases identified by Kahneman is the Anchoring Bias. Investopedia defines Anchoring Bias as “the tendency to be over-influenced by the earliest information presented to us when making decisions, thus allowing oneself to be driven to a decision or conclusion that is biased towards that initial piece of information, the “anchor.” Anchoring is a cognitive bias known as a “heuristic” or “rule of thumb.”

In the markets, our cost basis is the personal scorecard by which we measure the success or failure of our trade or investment. The price we paid becomes our anchor point. It is the basis of our “price memory.” It is our subjective anchor point which can influence our future buying and selling decisions.

Here are several types of anchoring biases that can negatively affect your trading strategy if you are not mindful of them.

Personal Anchors

We all have personal dates that we anchor from. Think of your birth date or “our I.P.O and the annual celebrations of that day. We also attach significance to other dates, such as graduations, anniversaries, or holidays. Or even casual anchors, “she seems so much happier since she met Bob.” These are mental reference points to which we assign meaning in order to keep track of our progress or lack of it. These subjective events can influence our thoughts and even our behaviors.

I experienced the anchoring bias after going through a divorce. My account equity was divided in half in the divorce settlement, and I was anchored to the previous higher balance. I found myself swinging for the fences because I had a smaller account and tried to get it all back at once. Because my anchor was the previous higher balance, it clouded my judgment and decision making. When I quickly grew my post-divorce account balance by 50%, I didn't view it as a victory. I was still anchored to the pre-split balance and viewed the account as being down 33% from the former peak. My anchor point didn't allow me to see my positive performance for what it was, a 50% gain. It wasn't until I got back to my anchor of my predivorce equity high that I was able to view my gains as more than simply a return back to even.

Price Target Mental Anchors

Consider the danger of price targets as anchors for a stock. If an influential analyst appears on television and mentions that he is bullish on X.Y.Z stock, which currently trades at $55, but that his price target is $150. When people hear such a bullish proclamation, they often get anchored to that target and neglect risk management. Instead of raising their stop (to protect accumulated gains) as the stock climbs, they fixate on the price target “the expert” projected.

It is a shame to see anyone purchase a stock at $55, ride it up to $100 or more and refuse to sell as it weakens because, “the analyst said it would go to $155.” Don't get stuck on a price target and refuse to take gains when it is prudent, or worse, ride the stock all the way back down to the purchase price, or lower. Winners do not “take care of themselves.” You need to manage winning positions based on price action. We will discuss the use of A.V.W.A.P's as stop levels in the strategies section.

Whenever I share a trade idea for a stock, I have a general idea of where the price has the potential to go, but I seldom mention a specific price target. Often, the level I believe the stock can move to is an avwap from a prior high, which becomes a “level of interest” where resistance, which is discussed in detail later in this book, may be found. I look at these levels not as “price targets” but a place we could reasonably expect the stock to travel to. Rather than mention a price target, I refer to “worst case” stop levels pertinent to my timeframe. I don't want to fill people's heads with ideas of riches fueled by outrageous price targets. Instead, I want people to remember the cardinal rule: risk management is always job #1.

Influence of Market Anchors

An anchor price held by a larger group of participants will have far greater significance than one held by a handful of people. The greater the market's price memory for a stock the more likely that memory effect will influence future crowd behavior. The market "crowd" is a more reasonable measurement than our personal anchors because it represents a consensus of the market participants' mindset. We can never possibly know the reasons or motivations of each individual participant to buy or sell, and fortunately, we do not need to.

Important Anchor Points

We derive shared market anchors from various events deemed significant to the market. When there is an event which causes a big shift in the market's psychology, it becomes a level to anchor a avwap. These events can be a price breakout for no reason other than price action, or we may associate it with a fundamental catalyst such as an earnings report, industry or sector news, or an economic report. We will explore the individual catalysts and specific anchor points in depth in the strategy section.

Suggestions and Ideas for Personal Trading Practices

Understand What You Can Control

There is little we can control in the market. This can be a source of frustration to those without a solid understanding of market structure and a plan to deal with uncertainties and market surprises. The illusion of control is greater than its reality because of the subjective nature of our analysis.

While we may do our best to make sure our analysis is unbiased, the market will throw surprises at us, which can devastate our accounts in the short-term. We want to plan for the best and prepare for the worst. That is why an exit strategy for our losers is so important.

Working With Heightened Uncertainty

Initially, you can control the size you commit to a trade, but market environments are never the same. Sometimes the market seems to fire on all cylinders, and it feels as though you can do no wrong and those are times to “go for it.” Other times (often during earnings season—the times of the year that earning reports are published) there is a greater sense of caution in the market and those heightened periods of uncertainty are the time to slow things down.

If we were to investigate the daily P&L of an emotionally intelligent trader, we would find occasions of trading actively and occasions of standing back. We would see periods of high-risk taking and periods of caution. All markets are not created equal: some bring more opportunity, some less. The self-aware trader knows when “it's my market” and goes into opportunity-seeking mode. That same trader knows when “it's not my market” and preserves capital.

In Uncertainty, Cash is a Position

We can adjust our market exposure with a reduction in our share size (risk amount) per trade, be more selective in the stocks we trade, switch to a shorter timeframe, or maybe employ a different strategy than what we typically do. We can also just sit on the sidelines in cash. Cash can be the best position if you don't perceive an edge or insight that will help you be profitable. Cash gives us the ability to observe objectively, rather than force inferior trade setups. One of my favorite market phrases is, "It is better to be on the sidelines and wish you were in, than it is to be in the market and wish you were out."

Fear of Missing Out (fomo)

Before we move on, let's discuss the Fear of Missing Out ("fomo"). fomo is described as anxiety caused by the belief others may have more fun or, in the markets, may make more money than you do. Those who have a plan and buy stocks properly do not experience fomo.

It is the “Johnny-come-latelys” who read news about a company, look at the soaring price and cannot resist but to get involved. Rather than wait for a low-risk entry point, they throw caution to the wind and buy (chase) the stock higher. The fear is that a stock will soar to record highs while they do not have a position. This can be a powerful motivation to chase the stock, even after it has already experienced a large, short-term move and may in reality have little or no further upside. These are risky purchases because it is difficult to keep tight stops and limit losses if the stock reverses.

If you miss out on the first move a stock makes, then it is better to wait. Often, the stock will undergo an orderly correction (by price or through time) and then provide a low-risk opportunity to get involved. If the stock doesn't pull back and give you a new buy point, remember this phrase "missed opportunity is better than lost money." Embrace the jomo (joy of missing out) because you stayed disciplined with your approach.

Contrarian Trading

We define a contrarian as someone who opposes or rejects popular opinion. In the markets, it means to trade against trends, to buy when the trend is lower and to sell when the momentum is higher. Sentiment indicators attempt to identify extreme levels where a trend may tire, so a contrarian can make a trade in the opposite direction.

As you may have guessed, I am not a contrarian trader. I believe “the trend is your friend until it bends or ends.” To trade in the direction of the trend is mathematically correct. In an uptrend, the sum of the rallies is always greater than the sum of the declines. If we buy correctly (as a move begins, and not by chasing prices after the trend is underway) and manage risk (with an appropriate trade size and a strategy to cut losses quickly), there is no reason to be “smarter” than the rest of the market.

It may be difficult to accept price action as being reasonable when stocks make big runs. It is said, “the collective intelligence of the crowd sinks to the level of the least educated participant.” If price action makes little sense, it is not a reason to be a “contrarian” and bet against the crowd's behavior. It is a reason to study the action more carefully on shorter timeframes and plan for a potential reversal.

There is no such thing as a stock's being “up too much” if there are more buyers. Likewise, there is no such thing as a stock's being “down too much” if there are still sellers present.

A Brief Discussion of Stop Losses

A stop loss order is designed to protect your capital after you start a new position in a stock. As we know, risk management is always job #1. That job begins in the planning stage of the trade when you determine what your maximum risk will be on the trade. There are two common types of stop loss orders, the stop market and the stop limit. A stop market order simply says, "if the stock trades at 24.35, sell my stock at the market."

The stop limit order gives you more control of the order. It might be entered as, "stop 24.35, with a limit of 24.20." For the stop limit, it will sell the stock as soon as the stop is triggered with a trade at 24.35 and it will continue to sell the stock down to a limit of 24.20. The placement of stop orders is discussed later in more detail.

Chapter 5

Anchored vwap Components and Comparisons

Telegram : @GroupBuys Bot

“Get the fundamentals down and the level of everything you do will rise.” —Michael Jordan

Chapter Objectives

1. Understand the difference between vwap and avwap

2. Understand how the avwap is created

3. Understand similarities between avwap and Dollar Cost Averaging

4. Understand how to use avwap to achieve market goals

We can measure the vwap and avwap for any financial product where price and volume data are available. The traditional vwap is the volume weighted arithmetic mean of all trades for one day. When we change our measurement period from the start of the day, it becomes “anchored” to a user defined starting point.

The idea for a point-and-click anchoring of the vwap is one that I had been thinking about from the first time I used the vwap in 2003. It was in 2015 when T.C.2000 implemented this feature at my request. Since then, dozens of other technical analysis platforms have followed their lead and made it available on their charts. By calculating the volume weighted average price starting at an anchor point, the vwap becomes an avwap (Anchored vwap). The avwap calculates the cumulative and dynamic (adjusts in real time) vwap from the anchor point forward. With the avwap, you can better understand the shifts between buyers and sellers that occur over all timeframes, not just from the start of a day.

The calculation and interpretation of vwap and the avwap is the same regardless of the anchor point or the timeframe analyzed. In short, the Anchored vwap is a vwap with a specific time anchor point chosen by the trader. If the vwap begins at any point other than the start of a new day, it is the “vwap anchored from” the start of the measurement, or avwap.

In the avwap calculation, each share receives equal weight. It does not assume that an institutional share traded is more important than a share traded by a retail trader; one share, one vote. The avwap averages price and volume from any point to show us who is really in control of the trend.

It is a quick and easy way to identify the trend from the start of the anchor point. It keeps us on the right side of the market, “the trend is your friend.” The avwap is a technical tool that allows us to determine who is in control (buyers or sellers) from any point. It shows us how well they maintain control, or if there are signs of a trend slowdown or potential reversal.

Regardless of timeframe, when the stock is above the avwap, the buyers are in control and when it is below the avwap, the sellers are in control. In the remainder of this book, you'll find me using the phrases "guilty until proven innocent" and "innocent until proven guilty." What I mean by them is that the benefit of the doubt should go to the direction of the trend. A trend, once established is more likely to continue than reverse. That is a tenet of technical analysis.

avwap analysis allows us to be more discerning in our analysis and in the trades we make, because it gives us a stronger understanding of how capital flows through markets. It helps us to identify important price levels in the market where sentiment is likely to change. When we recognize these levels in advance, we can study them more closely, on shorter timeframes.

On these shorter timeframes, we look for evidence where buyers or sellers may gain an edge. We want to identify the key levels where we can plan our trade, whether entering or exiting the market, by figuring the risk/reward ratio. Then we patiently wait for price confirmation before we execute and put our money at risk. Once in a position, our job switches from analyst to risk manager.

Chart 5.1 summary: A candlestick chart of a stock's price over one day, featuring a traditional daily VWAP and an Anchored VWAP (AVWAP). The AVWAP is set at a significant high point and trends downward, while the daily VWAP is a smoother curve below it. The chart highlights how the stock price reacts to these levels, specifically noting that sellers emerged at the VWAP twice in the afternoon. The takeaway is that anchoring a VWAP to a significant high provides a specific reference point for identifying selling pressure.

Chart 5.2 summary: This candlestick price chart features an Anchored Volume Weighted Average Price (AVWAP) line. Red arrows indicate a downward trend when prices are below a declining AVWAP, while green arrows show an upward trend when prices stay above an upsloping AVWAP. The point is that the AVWAP serves as a trend indicator, where price position relative to the line determines if a stock is viewed as bearish or bullish.

Dollar Cost Average (D.C.A)

The easiest way to understand the Volume Weighted Average Price (vwap) is to consider the investment strategy known as “Dollar Cost Averaging.” The D.C.A strategy is to invest a fixed dollar amount at a regular interval, such as once per month. When you invest the same amount each month; whether the market is up, down, or sideways, it reduces the timing risks for longer-term investors. D.C.A is more about “time in the market” versus “timing the market.”

If you invest $1,000 each month into your favorite long-term stock, at the end of one year, you will have invested $12,000 in the stock. When you decide to sell your stock, you need to report your cost basis to the I.R.S so they can collect their fair share of the profits. How do you calculate your average cost per share? Do you take the 12 separate purchase prices, add them up and divide by twelve? These may give you an approximate price, but the I.R.S will not like it when you give them this “halfassed” calculation when it is time to pay taxes on your big gains.

Table 5.3 shows the stock price paid for each of the 12 purchases. When you invest a constant dollar amount ($1,000/month) and the price of the stock fluctuates, you will purchase a different number of shares each month. When the price of the stock is lower, you will purchase more shares (see month 1) and when the price is higher (see month 12) you will purchase fewer shares.

Table 5.3 summary: A dollar cost averaging calculation over 12 months with a fixed monthly investment of 1000, totaling 12000. As the price fluctuates from a low of 36 in month 1 to a high of 72 in month 12, the number of shares purchased each month varies, ranging from 27.8 shares at the lowest price to 13.89 shares at the highest. The final result is an average price of 59.42 and a total of 209.05 shares, resulting in an average cost per share of 57.40.

At the end of this 12-month period, you will have accumulated 209.05 shares of the stock. Your dollar cost average paid for the stock would be 57 dollars and 40 cents (12,000 dollars divided by 209.05). In essence, 57 dollars and 40 cents is the Volume Weighted Average Price (vwap) of your investment. The mathematical average, based on price alone, would be 59 dollars and 42 cents, which is not the correct number.

Math summary: This expression calculates the Volume Weighted Average Price. It divides the sum of the price multiplied by the volume for every trade by the total volume traded.

vwap = Sum (price x volume at price/sum Total Volume)

In plain English, we multiply the price of the trade by the total number of shares traded at each price, and that number is then divided by the total number of shares traded to come up with vwap. Fortunately, we do not have to do these calculations; they are built into any decent chart platform. The vwap starts at the first data point (whether it is 1-minute, 30-minutes, daily, or other period) and builds with each new trade. The more volume traded at a certain price level, the greater the weighting (and more impact) that price has on vwap. Similarly, the larger the timeframe calculated, the less impact each new period will have on the weight.

Chart 5.4 summary: A candlestick price chart showing an Anchored Volume Weighted Average Price (AVWAP) line starting from a specific anchor point. An inset box magnifies the start of the sequence, illustrating that the AVWAP calculation begins with the first candle's value. The figure demonstrates how the AVWAP serves as a trailing average that tracks price movement from a chosen starting point.

Data Settings

When the user chooses the timeframe to study vwap, there may be an option for how the vwap is calculated in your charting software. To achieve the most accurate vwap value, you want to use the shortest timeframe available without affecting the ability to see it clearly on the chart (see Chart 5.5 to see how the data can appear to be “scrunched up” on shorter timeframes where there are more candles). Unless we use tick data, which uses every transaction in the calculation, all V.W.A.P's that do not use tick-data will be a very close approximation to the actual vwap. For our purposes, the variances are not critical. Just remember, the shortest time increments will provide the most accurate vwap approximation.

Chart 5.5 summary: Two candlestick charts showing the same trade data at different time scales: 1-minute candles on the left and 5-minute candles on the right. Both charts show a similar price movement—an initial sharp rise, a peak, and a subsequent decline—smoothed by a purple trend line. The 5-minute chart provides a more granular view of the price levels, while the 1-minute chart shows higher volatility and more frequent price fluctuations. The point is to demonstrate how the same market data appears differently across different timeframes.

For intraday trading, tick data is the absolute accurate number for vwap because it averages every single trade. Many platforms do not allow for such precise data, and some allow for intra-minute (10, 15, 30 second) price bars (or candles). For all but the most active of intraday scalpers, a 1-minute period is short enough to understand the vwap intraday. The longer the period of price data studied, the longer timeframe you can "get away with," but it is sometimes valuable to refer to the shorter timeframe for a more accurate look at the true value.

Active traders should start the day with a 1-minute timeframe for the first part of the day, and then use longer timeframes as the data gets “scrunched up” and it becomes difficult to differentiate the candles. A shorter timeframe slightly increases accuracy at new anchor points, but the longer timeframes allow more clarity of the larger picture. Shorter term timeframe traders will be the participants who will benefit the most from the intraday charts.

When considering where to set your anchor, the most common choices are to anchor from the: open (O), high (H), low (L), or close (C). The most accurate avwap measurement will include as much data as possible, so the O.H.L.G/4 is best, as it is the most inclusive of the data available. This simply means the weighting of the avwap will not be overly influenced by the open, high, low or close, it treats them all equally.

Is the avwap a Moving Average?

When viewed on a chart, it is easy to confuse avwap with a traditional periodic (or rolling) time weighted moving average. Time is part of the calculation of the avwap, but it is not the typical rolling time-based method used in the calculation of a moving average, where older data drops off and is replaced with newer data.

The avwap is the cumulative average price, weighted by volume. The value of avwap changes with the continued addition of new price and volume data, from the fixed starting point of our anchor. As time progresses, the amount of data builds cumulatively and the avwap will move up or down. We can view this as a gauge of an emerging trend. The avwap is displayed as a line, and it moves up and down as time progresses, and while the avwap looks like a rolling period average price — the avwap is materially different (and more valuable) because it starts at a significant event and builds with each new data point.

Momentum and Trend versus Value

Like any indicator, the analysis of the avwap will have different applications to various market participants. A long momentum participant will view the positive slope of the avwap as confirmation that their position is working. When this occurs, they want to stay involved and possibly add to their position after pullbacks to the rising avwap. If the momentum holder observes prices below declining avwap, they will not want to take new positions and might consider a sale of their longs, or to even go short the stock.

For an institutional trader who may take weeks to fill a large buy order, they are more concerned with price and value. They will be less aggressive about buying while the stock is above avwap and more aggressive while the stock is below avwap. Their job is to purchase the shares as close to, or lower than, avwap. They want to buy at “discounts” to the avwap to help improve the average price paid.

Speed and Lag

The amount of data used in any calculation of an average affects the rate of change of that calculation. I refer to this rate of change as “speed.” All averages become slower to respond when more data is brought into the equation. The number of data points increases throughout the period studied; this typically makes the indicator lag as we average more data.

Unlike a moving average, the avwap does not always slow down with the addition of more time and data. The volume weighting makes it possible for the avwap to speed up as time progresses if there is an unusual surge in volume.

Briefly summarizing, all averages suffer from some lag as the amount of data being averaged grows. The lag becomes more significant later in the relevant time period. New data points have diminished weight and will continue to have less weight as time progresses.

The longer the period averaged, the smoother an average line will appear. With avwap, however, volume is the most important factor in the calculation and a line displaying avwap will rapidly change shape, that is, speed up or down, as volume surges.

In chart 5.6, notice how the vwap “speeds up” as large volume spikes enter the market just after noon and 2 p.m. The vwap/avwap is unique in that the average price can experience spikes with more volume, while a time-based average would have a smoother arc.

Chart 5.6 summary: A line chart showing a price trend over time from 10 a.m. to 4 p.m., with a price axis on the right. The price generally trends upward, starting below 98.00 and ending near 100.00, while a secondary step-like line follows a similar but lower upward trajectory. The chart tracks a steady increase in value throughout the day.

Chart 5.6 This intraday chart (2-minute candles) shows how large volume spikes can create a quick change in the slope of the vwap. Chart: T.C.2000 dot com

Standard Deviation and Percent Offset Bands

Sometimes you will see standard deviation bands on a chart with avwap (see Chart 5.7). avwap bands are areas plotted at standard deviation levels above and below the avwap line. Percent offset bands are also used for the same purpose, except they will display at a fixed percentage above or below the avwap. Some people choose to display this additional information to identify areas where a stock is “overbought or oversold.” This information helps time their entries and exits based on historical volatility patterns.

Chart 5.7 summary: A daily candlestick price chart featuring an Anchored Volume Weighted Average Price (AVWAP) line centered between an upper and lower standard deviation band. The price trend generally rises over time, frequently bouncing off the AVWAP and staying mostly above the lower band, indicating a strong upward trend supported by volume-weighted average pricing.

My preference is to not use any type of volatility band displayed over avwap. I prefer a cleaner look to the charts and to manage risk based on trends, not on mathematical tendencies. As with any analysis tool, if you find value in it, you should continue to use it. Do what works for you.

Volume Weighted Moving Average (V.W.M.A)

Do not confuse a V.W.M.A with the vwap or avwap. A V.W.M.A is a periodic (time-based) moving average where more weight is given to bars with heavy volume and less emphasis on price points where less volume is traded. While V.W.M.A is similar to vwap and avwap in that it takes the volume of trading into consideration, the V.M.W.A is fundamentally different from vwap and avwap because it is a rolling average that continually drops off older data as it adds in newer data. The V.W.M.A is not a focus of this material because it is a rolling average. We are interested in the measurement of supply and demand forces from a specific time, not an average period. A rolling time-based average ruins our entire reason for anchoring from a specific point.

Chart 5.8 summary: A daily price candlestick chart featuring three technical indicators: a green 50-day simple moving average, a black 50-day volume weighted moving average, and a purple Anchored VWAP starting from a significant low. The green and black moving average lines track very closely together throughout the price ascent from March to October, demonstrating that there is almost no difference between the simple and volume weighted moving averages in this instance.

Part 2 Using avwap

Chapter 1

Strategy Overview

“The trend is your friend.”

Telegram : @Group Martin Zweig

Like many useful concepts, avwap is simple. It can be over-complicated by people who try to be “smarter” than everyone else, rather than simply focus on making money in the markets. Do not confuse simple with ineffective. I wrote this book as an easy-to-understand manual on how to use this dynamic analysis tool for better stock selection, timing entries, risk management, and exit techniques.

If you are interested in sifting through academic studies for further information about vwap, you can find some of these studies in the bibliography. Trust me, some of them are dense.

I hope you can profit from these strategies and use them to create and fine-tune strategies of your own. If you follow my work on Twitter (@alphatrends), you know I never suggest anyone blindly buy or sell a stock just because someone else (including myself) suggested it as a buy or sell. If you buy a stock, it should mean you did your own analysis and you know where you will place your stop to limit losses if you are wrong. It is your money, so take responsibility for it.

It doesn't matter where you find an idea. Once you put your money into it, it means that it makes sense to you, and you must accept responsibility for the outcome. If you constantly ask others what they think you should do with your money, you probably shouldn't be trading. I hope this book will help you to become self-sufficient and make your own trade decisions. It is a great feeling to have the confidence in your analysis so that you can spend more time working on yourself (independent thinking and discipline) and your strategies than listening to the opinions of others.

Note: This Book Uses a Trend-Following Approach. Trend

following is exactly as it sounds: we look to enter an established trend at a low-risk point and hold the stock until the trend slows or reverses. In many of the strategy examples we examine momentum/trend trades.

Remember These Principles

Limit Losses

Most of the examples in this book are trades that would have worked out. The lesson is to look for the right setups and then manage risk. The losing trades shown in this book (5 to 10% of the total) will all have one thing in common—small losses. Losing trades are part of the business, and how you handle them can distinguish between success or failure in the markets.

Focus on Price

I often say, “only price pays.” People often misunderstand that statement and think I consider only price action and ignore all other information when I analyze a stock. Nothing could be further from the truth. The markets are an auction process and prices alone tell us the price levels or ranges where business took place. Current price simply tells us the present value assigned by all market participants.

Price alone does not reveal other significant pieces of the complicated market puzzle. At the end of the day, price is the scorecard. As my friend Jeff Cooper says, “Price is the final arbiter.”

Pay Attention to Multiple Timeframes

One of the biggest issues with many books about the market is that they are written with a single timeframe dimension. They are all written for either investors, swing traders, or day traders. This material explains how to use the avwap regardless of your timeframe. You will see examples for many timeframes, and you will learn how to combine the timeframes together (multiple timeframe analysis) for better timing accuracy.

Recognize That Markets Are Fractal

We do not need to understand mathematics or geometry to recognize fractals. If we take the time to carefully observe and understand human nature and how stock market participants interact, we will see similar patterns in different markets and on various timeframes. All the concepts of trend alignment and A.V.W.A.P's are transferable to other timeframes because of the fractal nature of chart formations.

The fractal nature of markets allows short-term traders to experience, on smaller timeframes, what longer-term investors may take years to observe. This allows the shorter-term participant to learn market structure more rapidly. If you have a disdain for short-term trading, try to think of it as an opportunity to shorten your learning curve even if you do not participate in that timeframe. Shorter-term traders should also learn how shorter- term trends fit together in a longer-term market move. This knowledge can help you hold your winners longer.

Recognition of this fractal tendency is key to understanding why we can apply the same analysis techniques to completely different markets and on any timeframe. We only need to learn the basics in one timeframe, and we can apply those principles to all timeframes. The most accurate price analysis comes from a recognition of the interplay of various timeframes together for a more complete understanding of market structure.

Don't Get Hung Up on Timeframe

My personal preferred timeframe in the market is from a few days to several weeks. Most of the examples will be that timeframe. Please do not get hung up on the timeframe shown on any of the charts.

It is the concept that is most important. Many of the examples do not show the timeframe because it is unnecessary to understand the point on the chart.

You Can be the “Smart Money”

We often hear that “smart money” is buying or selling some stock or doing something we should strive to do in the market. We are meant to feel inferior to this mysterious group of participants. Here is the truth, smart money doesn't mean institutional money or a roomful of PhDs. It only means the group who controls the trend (meaning that they are on the correct side of the trend). It is a mix of institutions and retail traders; the same group that makes up the “dumb money” in the markets—the people on the wrong side of a trend. You can be the smart money if you understand market structure and use the best tools properly. avwap is one of the most important tools you need to understand to be in the smart money camp.

Create Your Own Process

At the 1969 Woodstock Festival, Jimi Hendrix performed what has become one of the most recognized versions of the “Star-Spangled Banner.” Jimi Hendrix most likely looked at the same sheet music that Francis Scott Key wrote 155 years earlier, but what Jimi played versus what Francis Scott wrote was much different. As an artist, Jimi “made the song his own.”

This book is the “sheet music” for a market approach. You can try to play it note for note in the market, and probably do well with it. If you really want to stand out and be a star in the markets, you will take this information for what I intended it to be: a guide. I wrote this book for you, as a “market artist,” to use as part of your method in the creation of a masterpiece of your own, your trading process.

No one knows what will happen in the future. If we anticipate all potential outcomes, we will never be surprised and we will be ready for anything the market gives us. An unemotional plan allows us to prepare for all scenarios in case our primary thesis is proven wrong. Part of our trade plan needs to account for the times price action moves against our trade position. We must be able to objectively cut an unprofitable trade before it grows into a large loss that is more difficult to recover from.

Work with Momentum

The goal of momentum trades is to buy stocks as they rise, sell them when they look to have peaked, and to avoid the subsequent selloff. If the trader can move from one winning stock to another, they can leverage time to keep their equity in stocks when trends are working to their advantage. Momentum trading is about “buying high and selling higher.” Of course, we know it doesn't mean that you should chase stocks that are moving higher but, rather to buy them as their momentum begins so then we can manage risk properly.

To emphasize concepts, and not get hung up on the names of the companies, I have removed all the symbols from the charts. The names of market winners and losers will change with different market cycles, the laws of supply and demand do not.

Chart 1.1 summary: A daily stock price chart using candlesticks, where red arrows mark breakout buys occurring when the price exceeds a prior high and green arrows mark momentum buys at lower price points. The chart demonstrates that breakout buyers often enter a short-term trend late, whereas momentum purchases provide more advantageous entry points.

avwap Subjectivity

Where to anchor the avwap is subjective. I try to remove some of that subjectivity with the use of concrete rules and examples. I packed this book with charts to reinforce the written word. After all, technical analysis is about charts.

Remember, no tool can provide the most important ingredients for success: hard work, discipline (with a willingness to be flexible), and risk management. That is up to you.

The avwap is not a magic bullet, but it will amaze you how often the avwap from a specific event becomes the actual price turning point when there is little or no other technical data to indicate a that change of trend should have occurred. My experience has convinced me that the avwap is the “most powerful” indicator. Whether you use it on a stand-alone basis for your analysis or as a complement to your current approach, I hope it is valuable to you too.

No method of picking stocks is without flaw. Fundamental analysis or technical analysis will not assure success every time you put your money at risk. If you expect consistent success by analyzing fundamentals ("fundamental analysis"), you cannot buy stocks based solely on any one fundamental factor, such as a Price to Earnings Ratio. Similarly, when using other forms of technical analysis, you need to consider more than a single historical trading pattern, such as a "Head and Shoulder," to be a skilled trader.

People who have learned to analyze a company based solely on its financial performance are often unfamiliar with, or unsuccessful at, technical analysis because they expect it to be formulaic. They confuse the “art” of interpretation and use of price study with the science of what they have read concerning “cookie cutter” patterns.

The strategies in this section are the ones that I have developed over my 30+ years of trading and continue to use each day. They are not the only ways to use avwap.

What About Extended Hours Trading?

This book is focused on the regular trading hours for U.S. equities, which are 9 30 AM to 4 PM Eastern Standard Time. The opportunity does exist to trade stocks in the pre-market as early as 8 a.m. and in the post-market as late as 8 p.m. For most stocks, volume is much lighter than in the regular trading hours and that creates liquidity issues. Trades placed outside traditional trading hours have a unique set of risks and, as such, are not for everyone.

There are times when the pre-market hours can get busy and large moves are often made in some stocks which may be issuing earnings reports or reporting other news. I typically do not get involved in these stocks. I seldom enter new positions in the pre-market but there are opportunities for those who are attracted to the very fast moves that can occur in these hours.

That being said, if I am holding a stock, I do like to take profits when there are large moves in the pre-market. It is all about your personality and your preferences.

Post-market moves are more common for the stocks of bigger companies, especially during earnings season when many companies report their quarterly results after the 4 p.m. close. This can affect some of the largest stocks in existence and the trading can be very liquid and volatile.

If you are prone to chasing stocks or unable to control your emotional urges, it will be difficult for you to trade successfully in the extended hours. Only you will know if it makes sense for your personality to trade during the extended hours sessions. Until you know, keep your share size small in extended trade hours.

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