One of the concepts I learned in the earliest years of my trading was how to know when I was in congestion. I was taught each of the concepts I will present, the most recent by my trader friend, Neal Arthur Muckler. I'll begin with that one.
Any time prices close on four bars, within the confines of the range of a single price bar and subsequent to that bar, you have congestion. This is regardless of where the highs and lows may be located. The single price bar may be termed a measuring bar.
You will have to closely and carefully study the charts that follow. Congestion can be very subtle in appearance. Often the difference between congestion or trend is the positioning of a single open or close.
I have added to this method a concept of my own. Any time prices open, close, or both on four consecutive bars, both subsequent to and within the range of any preceding single measuring bar, you have congestion, provided that the bar having only the open inside the applicable range occurs before a correction is made.
An inside open and close on the same bar count as one towards the four necessary to define congestion.
Let's take a look at this concept.
In the first instance above, we do not have congestion because **the close of the bar following the correcting bar did not occur within the range of the measuring bar***.
In the second instance above, we do have a congestion. A correction has not occurred, and we cannot initiate a trend fine until it does. Keep in mind that the four bars defining congestion must be consecutive. There can be no intervening bars.
Just to be sure that you get the hang of it, let's try it again showing almost identical formations so you can see the difference.
The only difference between these two formations is the position of the close on the last price bar.
Because we have had a correction, all bars must have the close within the confines of the range of the very first bar in order for us to define this situation as congestion.
