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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.

There are some traders who are simply trading the news and these people are known as fundamental traders. However there are also traders who only trade with indicators and patterns on their charts and these people are known as technical traders. Personally, I am a technical trader and I am going to show you how you can better trade the currency using technical analysis.

Below is some stuff you need to know in order to be able to do proper technical analysis:

1) Candlestick Patterns: This is usually one of the most overlook parts of technical analysis. Most traders do not spend time learning how to interpret candlestick formation and this is why they are unable to trade with success. You do not need to be able to know everything about candlestick but you definitely need to know the various type of reversal patterns or continuation patterns so that you can enter your trade more accurately.

2) Forex Indicators: Once you have familiarized with the candlesticks, you need to spend time to learn the features of different forex indicators so that you know which to choose for your trading plan.

3) Decide on Your Type of Trading Style: There are basically 3 main types of trading styles you can adopt.

You can be a forex scalper who enter and exit a trade within minutes and only trade on the low time frame charts like the 1 minute and 5 minutes.

You can be a forex day trader who enter and exit a trade within the same day and you will be trading off the 15 minutes, hourly and daily charts.

You can also be a position trader who enter and exit a trade within days or even weeks and you will be trading with the daily, weekly and monthly charts.

What you decide to become depends on your time availability. If you do not have a lot of time to look at the chart everyday, you should choose to be a position trader as you only have to take a look at your chart every few days because you are trading off those higher time frame charts.

If you have 1 to 2 hours everyday to do technical analysis, you can choose to be a day trader. You can spend one to two hours to do proper analysis and then place your trade on the day.

If you have the luxury to trade anything of the day and you are a impatient person who wants to see result fast, you can choose to be a forex scalper.

Once you decide on the type of trader you want to become, you can then decide on the time frames to use. At this point of time, you can then create a trading plan with your chosen indicators and a set of conditions that you need in order to enter a trade and exit a trade.

For those of you who are new, this can be a difficult task but it is something that is necessary in order to be successful in this field.

Learn how you can trade forex for a living with the help of Kelvin’s blog which provides useful Forex Advice to traders of all levels.

You can also learn how to make use of various forex indicators to increase your odds of winning with the help of the Best Forex Indicator Guide online.