This is a look at the Technical Analysis Explained series where we speak of congestion entrance, a type of trading .
Movements in the market occur from trend to congestion and back again, in a ceaseless, ever-continuing cycle , constantly going on over and over again . This has happened as long as there has been a market and will presumable continue as long as markets exist in the future . The only times when we do not see this cycle occurring are in times of intervention, regulation, or artificial constraint , such as market regulation, price fixing, market suspensions, price limits, and more – and this only causes a temporary disruption . As long as there is variation in supply and demand , and as long as human beings come together in trade and act on their differing perceptions of value and opportunity , trends and congestions will continue in the markets.
There are different names this can be called . In some cases it’s referred to as disequilibrium and equilibrium , some speak of vertical moves and horizontal moves describing the way the chart moves across the page , some speak of distribution as a movement upwards and the sideways movement as development . Really it’s all the same thing .
Trends are moves that carry us progressively in one direction ; a congestion is a period on the market where it goes back and forth between resistance and support and it’s movement is horizontal on the pages.
We saw in earlier articles in our Technical Analysis Explained series that we have a clear definition of what a trend is – this is a series that has three or more consecutive bars that end up closing on a particular side of the Pldot . Since a congestion is the opposite of a trend , we expect our definition of a congestion to be simple as well , and the definitely is simple. A market is in congestion when the market doesn’t close on a certain side of the Pldot for three times in a row. How could it be otherwise ? We say the market is either in a trend or not , and we know what a trend is , so everything else is a congestion . Markets are either in congestion, or they are in a trend.
Now congestion must be broke down into three different parts , as we define congestion in three different forms – congestion entrance, congestion action, and congestion exit . Here is a simple look at these definitions .
Congestion entrance trading happens after the market is in a trend, where there are three or more closes on a side of the Pldot , but then the next bar closes on the opposite side of the Pldot . So that bar , with its close on the opposite side of the PLdot than the previous three bars , is the very first congestion bar , and after the trend, it’s the first bar.
Congestion action trading happens when the market goes back and forth , and as it goes forward, it closes on either one side of the Pldot or the other . We will talk about this in detail in the next article in our Technical Analysis Explained series.
Congestion exit trading occurs as a new trend is about to occur and the market is leaving congestion. That makes sense, does it not? If the market violates congestion confines, either the dotted line or the most recent block level , then the market is manifesting congestion exit trading . Of course, there’s a lot to be said about it , and the topic is interesting . But that is for another time and so we will not deal with it more here . Look for other articles on the topic .
