What is the Anchor Zones Trading Pattern?
The Anchor Zones Trading Pattern is a price action trading technique that involves the identification of certain candlesticks called Anchor bars.
Such Anchor bars then form the basis of this trading technique.
After identification of Anchor bars, traders then draw Anchor zones from which trade setups are picked.
What are Anchor Bars?
But what are these Anchor bars?
Anchor bars are specific candlesticks characterized by optimum price activity.
They, therefore, bear one or more of the following signs of extreme price activity:
- Wide Range.
- High Volume.
So you identify an anchor bar or candlestick by checking if it has any of the above three characteristics.
You can then proceed to draw anchor zones and then trade the anchor zones.
What are Anchor Zones?
Anchor zones are akin to support and resistance levels were drawn at the upper and lower limits of anchor bars.
Once you spot anchor bars, you should mark their highest highs and lowest lows.
You should then expect the price to trade within such a range forming the basis of this trading pattern or technique.
Anchor zones do not generate trading signals on their own.
Actually, you just use them to mark areas of price congestion or consolidation.
Once you mark the anchor zones, you should expect the price to remain within the range of such upper and lower anchor zones.
Meaning the price should trade within the high and the low of the anchor bar(s) identified.
What that means is that Anchor zones are just part of the process.
They are just a way of establishing support and resistance.
Then you wonder what is used as the signal and entry trigger in this trading technique.
Well, you already know that bearish reversal candlesticks and patterns at resistance have a sell connotation.
Similarly, bullish reversal candlesticks and patterns at support have a buy inclination.
Such, and any other bullish or bearish entry signals and triggers at the respective level are what you use as entry signals and triggers.
I know you have a lot of unanswered questions right now.
How to use the Anchor bars and zones to establish support and resistance. And how to exactly use the Anchor zones to trade successfully in Olymp Trade must be the top questions, right?
Well, in today’s post, I will reveal to you how you can make successful trades with the Anchor Zones Trading Pattern in Olymp Trade.
Making Successful Trade with the Anchor Zones Trading Pattern in Olymp Trade.
If you understood the basics from the introduction section, you are at a better place and will find it easy to learn how to trade this technique in Olymp Trade.
It is no rocket science because you have already understood that Anchor zones are likened to support and resistance.
If you already know how to trade support and resistance, you will be smiling throughout the guide.
Here are the simple steps to making successful trades with the Anchor zones trading pattern in Olymp Trade:
Set Up the Indicators.
You must be wondering what indicators are for, yet we termed the Anchor zones trading pattern as a price action trading technique, right?
Well, we also mentioned the criteria which any candlestick must meet if it will be an anchor bar. Such included having a wide range, gapping, and having a high volume.
How then will you know that a candlestick was accompanied by high volume unless you have a volume indicator in place?
You also need the range indicator to be sure that a candlestick was too long to meet the criteria of being a wide-range bar.
Check if the two indicators – volume and range indicators are available on the indicators tab and add them to your price chart.
You will be done with the first step.
Find Anchor Bars.
Anchor bars are at the core of the anchor zones trading pattern.
Without them, there would be no such trading technique as the anchor zones trading pattern.
Do you remember what we said anchor bars are? Anchor bars are specific candlesticks characterized by optimum price activity. Such candlesticks have one or more of these signs of extreme price activity:
- Wide Range.
- High Volume.
To identify an anchor bar, make sure it meets at least one of the above three criteria.
An anchor bar may be accompanied by extremely high volume, a higher than average bar on the range indicator, or preceded/ followed by a trading gap.
Anchor bars may actually be several in a particular area along with the price chart.
Make sure to capture all the bars which show extreme volume, range, and the presence of an extreme trading gap.
Note: The first hour of the trading day usually has a wide range and high volume.
Therefore, you can utilize it to spot anchor bars and draw anchor zones which may serve as the anchors for the rest of the trading day.
Draw Anchor Zones.
Anchor bars are the basis on which traders derive anchor zones. I hope you do remember what anchor zones are, but if you don’t, I will remind you of course.
Anchor zones are levels that you draw at the upper and the lower limits of anchor bar(s).
They are just like support and resistance zones, within which you expect the price to the range.
So how then do you draw anchor zones?
First, you must factor in all candlesticks which showed extreme price activities of volume, range, and gapping. If it was one candlestick, then just use that one candlestick.
Identify the highest high of all the candlesticks factored in as anchor bars.
If it was one, just identify its high. Use a horizontal line to draw the upper anchor zone at that level.
Similarly, identify the lowest low of all the candlesticks factored in as anchor bars.
If it was one, just identify it’s low. Use another horizontal line to draw the lower anchor zone at that level.
You will have been done drawing anchor zones and can now proceed to trade such zones.
Look for Trading Signals.
Are your anchor zones ready for action?
The upper anchor zone is akin to resistance while the lower anchor zone is likened to support. If they are both sets, you can proceed to scan for trading signals.
Here is how bullish trading signals must look like:
- The price must fall within the range of the lower anchor zone.
- At that lower anchor zone, the price must form bullish reversal candlesticks or patterns or any other bullish reversal signal.
On the other hand, here is how bearish trading signals must look like:
- The price must rise within the range of the upper anchor zone.
- At that upper anchor zone, the price must form bearish reversal candlesticks or patterns or any other bearish reversal signal.
Once you spot a trading signal in that order, you can then proceed to entry as shown in the next step.
Set Up Buy Stop or Sell Stop Pending Order.
Set up a buy stop pending order just above the high of the bullish reversal candlestick or the buy trigger candlestick spotted at the lower anchor zone.
On the flip side, set up a sell stop pending order just below the low of the bearish reversal candlestick or the sell trigger candlestick spotted at the upper anchor zone.
Once your order is activated, the price is meant to continue in that direction until it hits the opposite anchor zone.
Adjust Stop Loss and Take Profit.
For the buy stop pending order, place the Stop Loss just below the lower anchor zone.
For the sell stop pending order, however, place the Stop Loss just above the upper anchor zone.
Take Profit for either position needs to be just before the anchor zone opposite to the entry anchor zone.
For the buy order, take profit just below the upper anchor zone. For the sell order, however, take profit just above the lower anchor zone.
You didn’t think it would be this easy and simple, did you?
Well, now you understand why I had told you that if you already know how to trade support and resistance, this would be simple to grasp.
Go ahead and make successful trades with the anchor zones trading pattern in your Olymp Trade trading account.
It is such simple trading techniques as these which have great profit potential. You don’t need to be sophisticated to make money out of the asset markets.