Shannon’s mantra is simple: indicators, news, and rumors are secondary. The only thing that matters is price action. His book teaches traders how to stop fighting the trend and start identifying the "path of least resistance" by looking at the market through different lenses. 1. The Four Stages of the Market Cycle
While the book focuses heavily on moving averages (specifically the 10, 20, and 50-day MAs), Shannon has since become the leading authority on .AVWAP allows you to see the average price paid for a stock starting from a specific point in time (like an earnings report, a swing high, or a gap). If the price is above a rising AVWAP from a significant low, the "average" buyer is in control and in profit. 4. Risk Management: The "Stop Loss" is Non-Negotiable
Most successful traders view the cost of this book not as an expense, but as an investment—often one that pays for itself in a single well-executed trade. Shannon’s mantra is simple: indicators, news, and rumors
A sideways, "basing" period where the stock stops falling and starts building energy.
The breakout and sustained uptrend. This is where the most money is made. and 50-day MAs)
Used to identify the long-term trend and major support/resistance levels.
The decline. Shannon famously teaches that there is no reason to own a stock in Stage 4. 2. Multi-Timeframe Alignment a swing high
The "magic" happens when multiple timeframes agree. Shannon suggests a top-down approach:
The top of the cycle where buyers and sellers are in a tug-of-war.
The foundation of Shannon’s analysis is identifying which stage a stock is currently in: