Part II Trading Congestion Action and Technical Analysis Explained
Let's continue our discussion of congestion action trading in the article series about technical analysis explained.
We cannot exit congestion until we have a new trend run . Without a new trend run, the market is in congestion . Congestion exit is defined as a trend run out of the confines as established by the preceding congestion action .
Let's use emphasis that is a bit different and say this again .
There are two things that we can say congestion action does .
First, strong original confines are created.
Two: it creates strong expanded confines .
It's the congestion entrance bar by which the original confines are created, which happens to be the first bar of congestion action, and the very next bar known as the second bar of action, and the third bar if a trend run doesn't occur. The lowest low and the highest high of the bars is what determines the confines, as block level and dotted line define them . These are the congestion original confines .
We should point out here that the third bar of congestion, price , does one of two things . Price either:
1) Enters into a trend run, and thus into congestion exit, and trend reversal , since the third bar closing on the other side of the PL dot isn't confirmation of congestion action. The confines of congestion are then determined by the original confines of congestion, . OR...
2) Closes on the other side of the PL Dot , and congestion action is continued . The confines of congestion in this case are determined by original congestion, as set out by the highest high and the lowest low of these first three bars .
Now, what about expanded confines?
Expanded confines can be created by congestion action by moving so it is outside of the original confines, providing that there has been no trend run in the meantime . When price moves outside the latest confines it redefines the confines of congestion . From then on, any congestion exit deals with this redefined confines, and not the original confines .
( Of course, it should be noted , that the original confines can have an effect on price , since any line or level can do so , but in most cases , repetitive congestion action can build up the true confines , without the appearance of a trend run .)
As long as there is no trend run, the confines can be expanded . Only when congestion is exited and price is in a trend run can we say that there is a definition of the boundaries of congestion.
If you look at Drummond Geometry, technical analysis explained defines congestion in a clear and consistent manner , and gives the framework that allows us to identify confines of congestion in each circumstance.
Later in the technical analysis explained series we'll look closely at congestion entry and exit. These clear congestion definitions will definitely become useful .
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Wondering how to trade in a trend ? Various tactices can be used. Some of the older traders believe trends happen to be easy since any old trading plan will work . Because prices are always moving in one direction , even if you start out with a bad trade position, it doesn't matter , since the trend will bail you out in the end . Some truth is there within this maxim, but trend trading can use some refinements as well .
There are steps the market moves in , and the steps can be set apart and then studied, one at a time . Also, these steps follow each other in a regular sequence , and this sequence can be analyzed and defined, item by item.
We speak here of congestion action trading . Congestion action in a market is one that goes back and forth between congestion confines , between support as well as resistance ( or between the block level and dotted line in the terms of Drummond Geometry ). This is action in the market that happens in congestion , and when there is not a trend run. The Dotted Line is the level created by the highest high of the preceding up trend , or the very lowest low that the preceding down trend created.
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