For trend-trading traders, when the market goes sideways, they will stay out of it. What about us (true price action traders) when we see sideways zones, also known as price congestion zone. What do you think? Is it an opportunity or a danger zone?
Don’t waste that period because they have quite a lot of profitable points if you know how to trade with them. This article will give you a completely different view of the price congestion zone.
Now we will analyze 3 basic cases that price action traders need to pay attention to.
The congestion zone is considered a natural support/resistance to Price Action
The congestion zone can be used as very good support and resistance. In many cases, it is even more reliable than the real support – resistance zone when connecting the peaks and troughs.
Below is a candlestick chart of EUR/USD with boxes marked as congestion zones.
- The price struggled at the beginning of the session
- The next time the price broke above the congestion zone, retested it then bounced back showing a strong bearish rejection. So we can see that the push from this area was very huge.
- We see the next pullback zone emerging. This could be a potential support zone in the future.
- In the next session, the price broke out of the zone and fell further. The price retested the previous congestion zone and bounced right up. So we can confirm that this zone was not as strong as the one below.
The above determination is similar to using the price areas where the volume is concentrated as support – resistance. But the method I just talked about is more powerful because it focuses more on the strength and acceptance of the current crowd. Therefore, the accuracy is higher than determining the support – resistance zones based on the swing points in the past.
The congestion zone is used to exit orders in the Price Action style
If you pay attention, you will see that most trends do not reverse immediately. They will turn sideways before continuing or reversing. If you have caught part of the wave, then use the congestion zone as an exit signal.
Day traders can combine this zone with the session of the day to exit more efficiently. Usually, the warning signal will appear at midday. From then until the end of the session, there will be clearer exit signals.
- The midday congestion caused the market to enter the indeterminate phase. If everyone has entered a DOWN trade before, it might be a good time to exit.
- The price continued to decline slightly after breaking out of the pullback zone.
- The price started to bounce up strongly and the next congestion was the second opportunity to exit the order.
- The price reversed after breaking out of the previous pullback zone.
- Long pullback zones are dangerous ones.
When the market struggles for a long time, it is a dangerous sign. Any orders you enter at this moment are unattractive and likely to lose. The long accumulation contains a lot of energy like a compressed spring about to burst. We will never know in which direction the price will break until the breakout occurs.
Therefore, in this particular case, you should stay outside and observe instead of entering an order with no confidence, letting it be by chance.
Through this article, I hope you can somewhat identify opportunities and risks when the market moves sideways with Price Action. Do not be afraid of everything. Analyze it scientifically to minimize the risk. In any market, if you have enough knowledge, there are always opportunities for you to make a profit. Wish you successful trading with the congestion zone.
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