Technical Analysis Explained: Congestion Entrance Examined

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This is a look at the Technical Analysis Explained series where congestion entrance is discussed .

Movements in the market occur from trend to congestion and back again, in a continuous cycle, constantly going on over and over again . As long as the markets have been around, this has occurred and will presumable continue as long as markets exist in the future . The only time that the cycle doesn’t go on include times of regulation, constraint that is artificial, and intervention , such as things like price limits, price fixing, and market regulation – and this only causes a temporary disruption .  But as long as supply and demand can vary , and as long as human beings come together in trade and act on their own perception of opportunity and value , markets will engage in trends and congestions .

Various names can be used for this. Often the idea of equilibrium and disequilibrium are discussed, others talk about horizontal and vertical movement describing chart movements, some speak of distribution as a movement upwards and development is referred to as the movement sideways. But it is all the same .

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 moves across the page in a horizontal manner .

Earlier we’ve seen in the Technical Analysis Explained series that we have a clear definition of what a trend is – it is a series of at least three consecutive bars that close on one side of the Pldot . Because a trend and congestion are opposites, the definition is expected to be simple of a congestion, and the definitely is simple. Congestion occurs in the market when it does not close on one side of the PLdot for three consecutive periods . How could it be different ? We talk about whether or not the market is in a trend , we’re already aware of what a trend happens to be, so everything else is a congestion . There is either a congestion or a trend in the market .

Now congestion must be broke down into three different parts , as we define congestion in three different forms – congestion exit, entrance, and action . But here, as an overview, let’s just set down the definitions .

Congestion entrance trading occurs after the market is in a trend with three consecutive closes on one side of the Pldot , and then the next close occurs on the other side of the Pldot . This bar , closing on a different side than the previous bars , is the very first congestion bar , and it’s the first one after the trend .

Congestion action trading happens as there is a swinging to and fro of the market, closing on one side or the other side of the Pldot as it moves forward bar by bar . In the next article we’ll discuss this more in the Technical Analysis Explained series.

Congestion exit trading happens when the market is about ready to go into a new trend . No doubt this makes sense. If congestion confines are violated by the market , either the dotted line or the most recent block level , the market is showing signs of congestion exit trading. When it comes to congestion exit trading, there is a lot to say, and the topic is interesting . However, this will be addressed later and we won’t deal with this further right now. Watch for more articles about this .

 


bookmark Technical Analysis Explained: Congestion Entrance Examined

February 26, 2010 · Filed Under Currency Trading

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