We speak here of how the crowd seeks direction. And we speak of seeking direction when direction is not apparent. When the market is in congestion, we know that direction is uncertain. That is what congestion is, a weaving back and forth between upper and lower limits, with the ultimate exit direction from those limits […]
In many disciplines it makes more sense to monitor the ending of the old with the idea in mind that this ending gives us early warning of the new.
Certainly that is true in fields like trading, where we are interested in activity on the edge, on the margin, in the evolving present, in the real time of now.
Relative values chart the relationships between price values and market structure, and contribute mightily to the unique flexibility and power of this methodology. These relationships are very helpful because they release market structure from the need to be expressed in price. The trader or analyst can now manipulate expressions of structure and visualize various structural conditions that can be applied across different time-frames and different markets. … more…
In every field there are things that the sophisticates see that the unsophisticated do not see.
Here we are looking at the beginning a trend, that is, the underpinnings of a trend — something that occurs before there is enough evidence of what is happening for the crowd to really notice it. In congestions and congestion action trading the crowd is wrong at the edges.
In the market we see such sudden change on scales small and large, and we see them all the time. Sometimes they show up as big gaps, sometimes as sudden reversals in trend, a reversal without the intervening action of consolidations and congestion. The cause usually stems from unexpected market information, such as a crop report that upsets forecasts in a radical way, unforeseen central bank intervention, a war starting or stopping, weather anomalies, an assassination, a government falling or a revolution succeeding.
We speak here of trends and that which creates and supports them.
What is a trend?
Well, in the market a trend up is a series of higher highs and higher lows, or if it be a trend to the downside, a series of lower lows and lower highs. It is directional movement. It is a reflection of energy expressed in prices, when the prices move in a series of steps to new territory
“Congestion action†is our term for that kind of trading which goes up and down, up and down, between support and resistance, and resistance and support. This pattern occurs again and again, and occurs in a great majority of all market activity. When you see the market bouncing back and forth – that’s congestion action.
We know that the market is almost always in a congestion of one sort or another, and that it is almost never in a pure trend. Or so that is the conventional wisdom. We say that between 80 and 90 percent of the time the market is in congestion.
But we should remember that we must always look at various timeframes. One type of trading in one timeframe does not mean that the same type is operative in another timeframe – not even close.