subject: Trading Congestion Action And Technical Analysis Explained Part 2 [print this page] Let's further discuss congestion action trading in our series on technical analysis explained.
Congestion can't be exited until a new trend run happens. Congestion occurs if there is no trend run . Congestion exit is defined as a trend run out of the confines as established by the previous action of congestion .
Let's use emphasis that is a bit different and say this again .
Congestion action can be said to do two different things.
One: It creates strong original confines .
Second, it creates expanded confines that are strong.
It's the congestion entrance bar by which the original confines are created, which is the first bar of congestion action , and the next bar, which is the second bar of action , and the third bar if a trend run doesn't occur. 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 the congestion original confines .
Here is should be brought to your attention that the third bar of congestion, price , does 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 congestion confines are then determined by the original confines , . OR...
2) The close happens 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 the lowest low and highest high of the first three bars sets out .
Now, what about expanded confines?
Expanded confines can be created by congestion action by moving out of any confines of congestion like original confines , as long as in the meantime there hasn't been a trend run . The confines of congestion is defined when the price leaves the latest confines . From that point on , then instead of dealing with the original confines in congestion exit, the redefined confines is dealt with.
( 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 a trend run appearing .)
The confines can be expanded as long as no trend run occurs . Only when price moves into a trend run and exits congestion can we say that there is a definition of the boundaries of congestion.
When it comes to Drummond Geometry , technical analysis explained defines the congestion in a manner that is consistent and clear, and gives us a framework that we can work with in identifying the confines of congestion under any circumstance .
In future discussions in our technical analysis explained series we'll take a look at entries and exits in a congestion . These clear congestion definitions will definitely become useful .
