This website or its third-party tools use cookies which are necessary to its functioning and required to improve your experience. By clicking the consent button, you agree to allow the site to use, collect and/or store cookies.
Please click the consent button to view this website.
I accept
Deny cookies Go Back
  • Price Action Trading Course
  • Trading Setups
  • Topics ↓
    • Price Action Trading
    • Day Trading
    • Trader Development
    • Site Map
  • TSR Trading Guides
  • Trading Resources
    • Trading Journal Software
    • Our Partners
    • Support Us
  • Member Login

Trading Setups Review

Trading Strategies, Guides, and Articles for Active Technical Traders

Forex Tester 5 - Software for traders by traders
You are here: Home / Trading Setups / Anchor Zones Trading Strategy

Anchor Zones Trading Strategy

By Galen Woods in Trading Setups on February 3, 2014

L. A. Little wrote two excellent books on trend trading. In his books, he explained a key timing concept called anchor zones, which is a very useful tool for price action traders.

In our review, we will find anchor zones and design a trading strategy around them. However, bear in mind that anchor zones are just a part of L. A. Little’s trading framework. To apply anchor zones in L. A. Little’s trend framework. you must refer to his books.

  • Trend Trading Set-Ups: Entering and Exiting Trends for Maximum Profit (Wiley Trading)
  • Trend Qualification and Trading: Techniques To Identify the Best Trends to Trade (Wiley Trading)

Anchor Zones

To mark out anchor zones, we must first find anchor bars. Anchor bars have one or more of the following signs of extreme price activity:

  • Wide range
  • Gaps
  • High volume

Once you find the anchors bars, you can draw the anchor zones by marking the limits of the bars. The chart below shows how to do it.

Anchor Bars to Anchor Zones
The steps are simple.

  1. Find bars with extreme volume, range, or gaps.
  2. These are the anchors bars.
  3. Draw zones along the limits of the anchor bars and expect price to stay within the zone.

For the examples below, we marked out the anchor zones using the same method.

Trading Rules – Anchor Zones

Long Trading Setup

  1. A bullish reversal bar that tests the support anchor zone
  2. Buy on break of high of reversal bar

Short Trading Setup

  1. A bearish reversal bar that tests the resistance anchor zone
  2. Sell on break of low of reversal bar

Anchor Zones Trading Examples

Winning Trade – Bullish Trade

Anchor Zones Trading Strategy Winning Trade
The examples in L. A. Little’s books are mostly from the stock market and in the daily time-frame. However, in this trade, we used the anchor zones method on a 20-minute chart of the 6J futures on CME.

  1. The extreme range and volume highlighted the anchors bars which guided us to mark out the support and resistance zones.
  2.  The bullish reversal bar that poked slightly below the anchor support zone is our trading signal. We placed a buy stop order on its high. Prices rose and stopped just short of the resistance zone, giving us a enough room for profit.
  3. This anchor zone was very successful in containing the price movement. The red and green circles highlight other potential anchor zone trades.

Losing Trade – Bullish Trade

Anchor Zones Trading Strategy Losing Trade
This is a daily chart of EBAY. It shows anchor zones that provided some support and resistance but did not lead to a profitable trade.

  1. Taking our cue from the volume and range plots, we marked out the anchor zones.
  2. Prices fell quickly to the support zone. It held up with a bullish outside bar and inside bar. However, neither bullish patterns had follow-through.
  3. Finally, a bullish reversal bar formed on the support zone, and we bought as price broke above it. However, the trade failed swiftly as price fell through the anchor zone to test an earlier swing low.

Review – Anchor Zones Trading Strategy

Price action often exhaust themselves with climatic moves. Anchors bars include gaps, wide range, and high volume. These are also signs of climatic moves. Hence, anchor bars are exhaustive moves.

Marking out support and resistance zones with anchor bars is a superb trading method. It integrates price and volume to find key price ranges that work well to contain prices.

This concept of anchoring prices with exhaustive moves also work in day trading. The high and/or low of the each trading session is often formed within the first trading hour. The first hour of the trading day usually has wide range and high volume. Hence, it serves as an anchor for the rest of the trading session. Morning reversal trades and opening range break-out trades work on the same premise.

Our trading rules focus on reversal bars as entry signals for simplicity. In fact, you can look out for any candlestick pattern to time the trade.

More experienced traders can even enter with limit orders slightly beyond the anchor zones. Using limit orders will result in minimal adverse price movement in successful trades. The stop-loss is tight and the reward to risk ratio is excellent. However, you must have ironclad discipline to exit without hesitation.

Read: Trading Ranges with Gimmee Bars

If you find this anchor zone concept effective, you should see how it works with L. A. Little’s trading framework in his highly reviewed books.

Read more about Gap Trading, Price Action Trading, Trading Range

If Trading Setups Review has helped you trade better, please support us on Ko-fi.

Support me on Ko-fi

Thank you for being awesome.

You can also check out other ways to support us here.

Or, please continue exploring what we have to offer…

Trading Pullbacks Using Trend Lines and Price Channels

7 Risk Management Tips From Top Traders

Your First Guide To Trading With The Volume-Weighted Average Price (VWAP)

Exhaustion Gap Trading Strategy For Reversals

What is the Best Day Trading Indicator?

Comments

  1. Al says

    March 20, 2019 at 3:23 AM

    Hi Galen,
    Is this strategy for swing trading or day trading?

    Reply
    • Al says

      March 21, 2019 at 11:47 PM

      Also, is this strategy best used in a uptrending or a sideways market?

      Reply
      • Galen Woods says

        March 23, 2019 at 8:49 AM

        Hi Al, I find that it works better for swing trading. But it’s helpful for day trading as well, especially for 24-hour markets like forex. You can use the concept of an Anchor Bar in both trending and sideways market. It boils down to how you use it. You can use it as a signal to exit from a trend or join one at the bottom of the range (assuming uptrend). You can also use it to set S/R levels for fading price swings within a trading range. These are my experience with it. You can learn more about how L.A. Little uses it in his book.

        Reply
  2. Ali says

    February 11, 2022 at 8:20 AM

    I can’t find Range indicator on tradingview. I have searched a lot but this Range bars doesn’t come up in tradingview.
    Please tell me how can I find it?

    Reply
    • Galen Woods says

      February 11, 2022 at 3:28 PM

      Try the Average Day Range indicator with a lookback period of 1.

      Reply

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Trading Course Banner

Search Trading Setups Review

Recommended For You

7 RSI Trading Strategies That Will Boost Your Trading Prowess

Five Top Tips For Growing A Small Trading Account

Three-Bar Reversal Pattern For Day Trading

3 Price Patterns For Timing Your Trade Entry

How To Trade With Inside Days

Instantly Improve Your Trading Strategy with Support and Resistance

3 Ways To Identify A Trend With A Moving Average

Top Trading Books

Top 10 Volume Trading Books

7 Forex Trading Books To Get You Started

18 Trading Psychology Books To Help You Trade Better

Top 10 Price Action Trading Books

7 Trading Books For Your Library


If Trading Setups Review has helped you trade better, please consider supporting us on Ko-fi.

Support me on Ko-fi

Or, check out other ways to support us here.

Thank you for being awesome.


Get a Free Course Chapter from Galen Woods' Day Trading With Price Action Course [PDF]

Plus, our latest trading guides and tips in right your inbox.

Trading Setups Review

  • Support Us
  • Contact Us
  • About Us
  • Privacy Policy
  • Affiliate Disclaimer
  • Full Risk Disclosure

Learn More

  • Day Trading With Price Action Course
  • TSR Trading Guides
  • Trading Setups
  • Trading Articles
  • Trading Books
  • Site Map

Futures and forex trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment. Risk capital is money that can be lost without jeopardizing ones financial security or life style. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Past performance is not necessarily indicative of future results.


The website contents are only for educational purposes. All trades are random examples selected to present the trading setups and are not real trades. All trademarks belong to their respective owners. We are not registered with any regulating body that allows us to give financial and investment advice.


Trading Setups Review © 2012–2022

Anti-Climax Pattern - Free Course Chapter

Learn a new powerful price pattern today!

Download for free now.