I have a 1997 940 Classic (European). I have the check engine light on and I got a a used cheap OBD2 reader (ANCEL AS200). I connected it to the car and I get an error saying it couldn't connect to the ECU.

Should I look for a unit with a specific protocol, or what? I was still at the sellers house, so I didn't buy the reader. But now I don't know if it's worth getting one from amazon either!

Ignition on?

There is a procedure to be followed when connecting these readers - as Chris says, an important step is to switch on the ignition after connection.
The connectivity should be standardised (especially here on Europe - not sure about USA?). BUT, different devices may be able to read codes to different degrees, and will probably not give as comprehensive a read-out as a Volvo dealer system. Should be good enough to give a good guide to any problems though.

Ian F