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Trend Trading Set-Ups: Entering and Exiting Trends for Maximum Profit by Alan Farley, L.A. Little

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CHAPTER 2

Anchor Zones: The Key to Timing Trades

In the preceding chapter, a methodological approach to qualifying trends was reviewed and some of the data that lie behind the methodology were revealed. A distinction was made between trend failure and trade failure because a change in trend typically is not the most optimal time to make a trade. Despite that, the previous chapter showed how the application of a simplistic stop out rule could dramatically alter the probability of failure when comparing confirmed trends to suspect ones. This chapter takes that idea a bit further.

In Trend Qualification and Trading,1 there was a reasonably significant amount of time spent examining price and volume with the idea of identifying areas on the chart where supply and demand were apparent. That was true of swing points as well as of anchor bars and anchor zones. It stands to reason that if price zones can be identified that have a reasonably good record of supporting or resisting a further decline or advance in price, then that would be the ideal place to use as entry and exit point when trading. This chapter reintroduces anchor bars and zones, briefly reviewing what they are and then expanding the trade analysis presented in Chapter 1 to include anchor zones for trade entry and exit.

ANCHOR BARS AND ZONES

An anchor bar is a place on the chart where buyers and sellers meet with a result that is anything but ordinary. Ordinary is where the volume of trading is somewhat subdued, the price ...

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