Technical Analysis Explained – Trading Congestion Action Part II
We’ll continue to take a look at congestion action trading in our series on technical analysis explained.
Until a new trend run occurs, congestion cannot be exited . With no new trend run, congestion occurs in the market. 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 .
We can say that congestion action does two things .
First of all, it creates original confines that are strong .
Second, it creates expanded confines that are strong.
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 second bar of action, which is the next bar , and the third bar if there is no trend run . The confines are determined by the lowest low and the highest high of these bars , as defined by dotted line and block level . These are congestion’s original confines.
We should point out here that in the third price bar of the congestion price , ends up doing one of two things. Price either:
1) Goes into a trend run, going into congestion exit and the reversal of a trend , since the third bar closing on the PL dot’s other side doesn’t confirm congestion action . The original confines then determine the congestion confines , as set out by the highest high and lowest low of the first two bars . OR…
2) Closes on the other side of the PL Dot , and thus continues congestion action . The confines of congestion in this case are determined by original congestion, as is set out by the lowest low and highest high of the very first three bars.
Now, what about expanded confines?
Congestion action can create something known as expanded confines by moving outside the original confines of congestion or any subsequent confines , as long as in the meantime there hasn’t been a trend run . When price moves outside the latest confines it redefines the confines of congestion . From that point on , then congestion exit will deal with this confines that is redefined instead of the original confines .
(We should note, of course , that there is an effect on price by the original confines, because any level or line is able to do so, but in most cases , the true confines can be built up through congestion action that is repetitive, without the appearance of a trend run .)
The confines can be expanded as long as no trend run occurs . Only when congestion is exited and price is in a trend run can we really say that the congestions final boundaries have been defined .
So for Drummond Geometry , technical analysis explained defines congestion in a clear and consistent manner , and gives us a framework that we can work with in identifying the confines of congestion under any circumstance .
In future articles in this technical analysis explained series we will talk about trade entries and exits in congestions . We will find it useful that we have established the clear definitions about congestion .
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