Congestion phases explained

Congestion phases explained

I explain congestion phases and why they are so important. This is an area which is covered in detail in the Complete Forex Education Program.

00:11

Introduction to trading pound pairs and indicators

00:11

The speaker apologizes for a brief interruption and explains that they are reviewing their current dashboard, focusing on pound currency pairs. They discuss different approaches to using trading indicators, noting that David trades more indiscriminately across pairs, while the speaker prefers specific pairs that tend to yield good trading opportunities. They mention a particular fondness for cross pairs like the pound-Ozzy and the euro-Was, highlighting their potential for profitable trades.

01:22

Choosing currency pairs based on trading sessions

01:22

The speaker advises traders not to be overwhelmed by the many currency pairs available, suggesting starting with at least three pairs to trade. The choice of pairs should depend on the trading session, as different sessions see different currency movements. For example, during the London session, many pairs move actively including yen and commodity crosses, while in the US session, Canadian pairs may show stronger movement. Traders are encouraged to experiment with a major pair, a cross pair, and a yen pair to understand their volatility, which varies by session and can be beneficial by offering larger price ranges for trading opportunities.

03:28

Analyzing pound Ozzy price action and volume

03:28

The speaker discusses the distinct market sessions and focuses on the Pound-Ozzy currency pair, noting a strong move in this pair. They highlight the importance of observing pairs at a midpoint or pause, rather than just at extremes, to anticipate potential breakouts either upwards or downwards.

03:59

The speaker explains their strategy of identifying moves that break away from volume points of control, accumulation, or distribution areas, emphasizing the Pound-Ozzy as a frequently monitored and traded pair. They also mention observing the Aussie currency on hourly charts, noting a potential change as indicators show signs of convergence.

05:02

Using multiple timeframes on NinjaTrader, including 3-minute, 10-minute, 30-minute, daily, and a smoothing indicator, the speaker analyzes the Pound-Ozzy pair. The 3-minute chart reflects sideways movement seen on the 15-minute array, suggesting the pair may be poised to break lower.

05:37

The speaker identifies a congestion phase in the market characterized by volume, price, and time analysis around the volume point of control. They express a preference for these congestion phases as they offer clear trading signals, contrasting with many traders who dislike breakaways due to a lack of understanding of volume price analysis.

06:08

Volume point of control and London open behavior

06:08

The speaker analyzes price movements characterized by fake outs and imbalances, highlighting the volume point of control as a key reference. They describe how the price attempts to break lower and higher but repeatedly returns to balance. The London open is noted for significant volume activity and frequent fake outs, where initial large volume pushes are not sustained by subsequent candle volumes, indicating weak upward momentum despite appearances.

07:03

The discussion continues around typical London open price behavior, emphasizing volume inconsistencies that lead to frustrating fake outs and an absence of firm directional movement. Multiple efforts to rise are met with insufficient volume, and candles narrow despite steady volume, signaling limited upward potential. The price repeatedly gravitates back to the volume point of control, reflecting ongoing market balance and uncertainty.

08:04

By examining a 15-minute chart, the speaker underlines that the observed price action suggests a lack of clear direction on faster charts, necessitating patience. They indicate that volume price analysis (VPA) and other indicators will become important tools to anticipate potential moves, such as an expected downward break. The segment sets the stage for applying analytical methods to better interpret the emerging market signals.

08:41

Multiple timeframe chart analysis of pound Aussie

08:41

The speaker analyzes the 10-minute chart, highlighting a large volatility candle and subsequent two-way price action with no clear direction. They note the price returning to the volume point of control around the London open, before dropping again. The volume point of control is explained as a key level of volume-based support or resistance, distinct from purely price-based levels, which will be covered in more detail in future sessions.

09:46

Further emphasis is placed on the importance of the volume point of control as a critical support or resistance area from a volume perspective. The speaker mentions volume strips on the chart that highlight these key areas, combining both price and volume data to better understand market dynamics. A deeper discussion on this topic is planned for later sessions.

10:21

The analysis shifts to the daily chart of the Pound/Oz pair, which shows a clear downward trend. This suggests that once the current congestion phase ends, a strong trend movement is likely on faster timeframes. The importance of using multiple timeframes is reiterated to assess potential price action. Recent candles show weakness with wicks at the tops, indicating failed attempts to move higher despite some buying interest.

11:32

On the three-minute chart, there is an observed attempt to break lower. The speaker considers how to evaluate the potential for a trading opportunity in this move, noting signs of weakness in the upward attempts and the lack of strong conviction in price action so far during the session.

12:11

Using congestion phases and stop-loss strategies

12:11

The speaker discusses a stock showing promising volume compared to previous ones, but is undecided on the optimal point to act. They mention reaching a support level based on volume and are exploring additional indicators to aid their decision. They also talk about the use of congestion phases in stock trading, acknowledging that while many dislike them due to fake-outs, these phases offer the advantage of clearly defined stop-loss points. Although tighter stop-losses may result in more frequent stops, the losses will be smaller, and when a genuine breakout occurs, it often leads to a strong trend.

13:22

Renko charts and momentum assessment

13:22

The speaker explains the use of Renko charts, which are non-time-based charts available on NinjaTrader but not on MT4. Using a Renko optimizer, the optimal brick size for the current currency pair is determined to be 6.8 pips, indicating slow price movement and market congestion. This slow momentum reflects the type of price action observed, suggesting the market is not moving quickly and requires patience.

14:37

The speaker emphasizes their patience while waiting for the currency pair to move decisively, despite sluggish price action. They discuss how indicators help identify price congestion, potential reversals, and the momentum behind moves. The speaker also notes that slow momentum can increase risk because trades may take longer to develop, and that fast movement is preferred for quick entry and exit in shorter time frames. However, personal trading style and temperament influence how volatility is handled.

15:51

The speaker describes their low neuroticism personality trait, which helps them remain calm and not overreact to losing trades or market setbacks. They encourage viewers to take a psychology test to understand their own personality traits and emotional reactions to market risk. This emotional stability can lead to different risk tolerances in trading, highlighting the importance of self-awareness in managing trades and risk.

16:59

The speaker notes that despite the slow Renko brick movement of 6.8 pips, the price is moving in a favorable direction according to the three-minute chart, breaking away from the volume point of control. They mention a potential trade entry based on a trend change indicated by a bright red trend monitor, and briefly reference an accumulation and distribution indicator, which they remove due to visual clutter.

17:37

Support, resistance, and price objectives with indicators

17:37

The speaker explains an indicator they developed that provides a unique way to analyze support and resistance, as well as price objectives. The current price is trading between R1 and S1 levels, reflecting congestion or a buffer zone on the charts. The indicator has six levels, unlike typical four-level calculations, and suggests the price is moving lower towards the S1 support level.

18:42

There is significant support at the S1 level, and if the price breaks through S1 with volume confirmation, it is likely to move down to S2 and potentially S3. The indicator also helps in setting stop-loss levels, recommending placing stops just above resistance levels like R1 or R2, close to the volume point of control to keep stops tight. This method contrasts with wider stops needed for reversal moves, as breakaway moves allow for more compact stop placements.

19:57

The current price action is steady and not rapid, expected to pause at a volume point of control on the 10-minute chart. The speaker highlights that trading on slower timeframes can yield consistent trades by observing price movement out of congestion, with potential for acceleration if the market conditions change.

20:31

Trend development from congestion phases and patience

20:31

The speaker explains how markets often accelerate after moving away from congestion phases, highlighting the importance of observing the center line in the array as it begins to sweep downward, signaling a strong move to the downside. This initial ripple from congestion is described as the spawning ground for trends, emphasizing patience during these phases.

21:06

Patience is crucial when navigating congestion phases because price movements can seem erratic and misleading. The speaker stresses the value of understanding price action through support and resistance levels, including those derived from Camarilla pivots, Fibonacci retracements, or moving averages, to better anticipate the direction of price trends.

21:38

Support and resistance play a vital role in analyzing price action, with moving averages like the 200 MA often acting as significant levels. Combining these technical tools provides a comprehensive approach to trading, and the speaker expresses confidence that this method will lead to successful trades, before handing over to a colleague for further insights.

22:09

The discussion encourages viewers to explore specific currency pairs like the pound-Aussie to practice applying price action principles independently. While no trading recommendations are made, the emphasis is on understanding momentum, trends, and support and resistance to build a solid foundation in analyzing market movements.

22:43

The speaker highlights the importance of studying price action across multiple time frames and developing a narrative around market behavior. This approach not only deepens understanding but also leads to satisfying trading outcomes, concluding with a handover to another speaker for a final wrap-up.

By Anna Coulling – creator of volume price analysis