We speak here of congestion action trading.
A market in congestion action is a market that oscillates back and forth between the confines of congestion, between support and resistance (or, in Drummond Geometry terms, between the dotted line and the block level). It is market action that occurs within congestion itself, and when there is no trend run. The Dotted Line is the level created by the highest high of the preceding up trend, or the lowest low created by the preceding down trend. The first Block Level is the low of the first bar that closes on the opposite side of the PLdot in a uptrend, or the high of the first bar that closes on the other side of the PL Dot in a down trend.
Once you have a sufficient understanding of the theory, characteristics, and patterns of congestion action trading, you can make a lot of money in this type of market. It is like harvesting a crop, or slaughtering the fatted calf. Congestion action trading can be real bread-and-butter trading….and what’s more, you can buy the table to hold the bread, and the house to hold the table, and the estate to hold the house, and the car, the driver, and the boat, and the plane, and all the other toys or essentials you may or may not desire. In short, congestion action trading holds a lot of potential for you, if you learn and apply all that is to lean about congestion action trading.
What is congestion action trading?
One result of technical analysis explained this way through Drummond Geometry is that the definitions are clear. Price is either in a trend run or it is not. It is not is a trend run when after three or more closes on one side of the PL Dot it closes on the other side of the PLdot And when the market is not in a trend run, then it is in congestion. Simple, and clear.
That first bar when price closes on the opposite side of the trending dot is the congestion entrance bar. We can say that by definition the market is then in congestion. We know when the market first enters congestion this creates a dotted line and a block level. This block level is the first block level of the congestion. Thus, congestion action is the name for that market action which starts with a congestion entrance bar and continues for an indefinite period of time until we see three closes on one side of the PLdot, which marks the start of a new trend.
Now let’s look at the way the limits of congestion are defined, and how they can expand.
Congestion action defines the parameters of congestion, also called the confines of congestion.
You will remember that the confines of congestion are defined by the dotted line and the block level, and that the first block level is established by the congestion entrance bar.
But these levels can be expanded. If prices goes outside the dotted line, or outside of the block level, while still in congestion (that is, without showing three closes on one side of the PL Dot), then price is redefining the confines of congestion and we can see a larger congestion area established. This can continue several times until a new trend run appears.
We will continue this discussion about congestion trading in our next article in the technical analysis explained series.
Ted Hearne is a Forex and bond trader who has written extensively about trading and has co-authored a “technical analysis explained” course called “Drummond Geometry”. His biography and further information about his work can be found at the technical analysis explained website.
Tags: forex, technical analysis, trade
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