When trading any instrument, it is essential to consider not only the prevailing trend and chart patterns but also key price levels. These levels—significant areas of support and resistance—can serve as area of value when the price revisits them. In today’s newsletter, we will examine an objective approach to identifying and marking these important levels on the Point and Figure charts.

Understanding Anchor columns

Point & Figure (P&F) charts use a vertical plotting method, where each box is added above or below the previous one, depending on the direction of the price movement. Each distinct movement in one direction forms a "column"—a column of Xs indicates a bullish swing, while a column of Os indicates a bearish swing.

When a column of Xs or Os contains more than 15 boxes, it is referred to as an Anchor column. These columns reflect strong momentum in the respective direction. A bullish Anchor column (more than 15 Xs) signals sustained bullish momentum, while a bearish Anchor column (more than 15 Os) indicates significant bearish momentum. These movements typically originate from key demand or supply zones.

Using Anchor column to mark important points

The point from which Anchor columns originate represents a zone where the price encountered significant demand or supply—depending on whether the Anchor column is bullish or bearish. These levels can serve as valuable reference points if the price revisits them in the future.

In a bullish Anchor column, the low often indicates a demand zone and can act as a support level. Conversely, in a bearish Anchor column, the high typically reflects a supply zone and may serve as a resistance level. Thus, Anchor columns can be effectively used to identify and mark key support and resistance levels on the chart.

Support and resistance levels often follow the Principle of Polarity—once broken, support can turn into resistance and vice versa. With Anchor columns, this shift is even more significant. A failed Bullish Anchor column can lead to the start of a Bearish Anchor column, and the reverse is also true. This means zones of strong demand can become supply areas, and supply zones can turn into demand. This is why we will often see momentum at these levels.

On the LICHSGFIN chart (0.5% Daily), red lines mark resistance from Bearish Anchor column highs, and green lines mark support from Bullish Anchor column lows. At Point 1, a former resistance turned into support after a breakout and also marked the start of a new Bullish Anchor column, indicating strong buying momentum.

In the chart below of HAVELLS on 0.5% (Daily), observe point 1. The resistance first gave birth to bullish momentum after being breached and the same level acted as a point of supply subsequently (marked by red line). Similar phenomenon happened at point 2.

Using Anchor columns to mark support and resistance can add an edge to your analysis. A trade setup can be created around this tool as well. Trading breakout in the form of a simple Double Top Buy or Double Bottom Sell, or trading traps can also be an option. Traps are one of my favourite patterns to trade near these important levels because they add liquidity and have probability of gaining momentum.

If you learned a new method to mark important levels, do share this newsletter with your fellow traders. Also, do check out TNT One membership get access to an extensive library of recorded courses and webinars on trading and technical analysis. Check out TNT One using the link below 👇👇