V.3:1 (13-18): Chart Congestion Analysis by Holliston Hill

Chart Congestion Analysis by Holliston Hill

Congestion areas appear in all markets whether it be gold, soybeans, IBM, or the Dow Jones Industrial Average. Being able to recognize the different types of congestion areas and knowing what they will lead to, can help the investor reap great profits.

A congestion area is a price level in which neither the bulls or bears are in complete control. Accumulation and distribution are other names for congestion areas. The market cannot make up its mind in which direction it wants to go. Congestion areas are pauses in the market action; many traders step aside to see what will happen next. During a congestion area the market fluctuates within a certain price range. These areas usually signal continuation or reversal in the previous market direction. Congestion area analysis can be applied to stocks or commodities or to any time frame whether it be a five minute chart, hourly chart, daily chart weekly or monthly chart. Because of the significance that congestion areas have in the movement of the market, it is important that the astute technician be aware of when they occur and what they lead to. I will define the different types of congestion areas and what each area signals.