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What is congestion and how do you trade it?

Congestion is when the buyers and sellers are basically equal, this can happen before a news event or on the turn in a trend. So for instance if we are at the bottom of a bullish upward trend and we are turning round, congestion happens.

Here is a GBPUSD chart for today.

So how do you trade this?

Congestion can mean a break above a resistance or below a support line, when this happens you will normally get a break, hook back (pull back) and go, or a falling wedge if bullish that results in a move to the upside, a rising wedge that results in a move to the downside.

Look on the GPBUSD chart, see how it has bounced back but there is no power in the retracement, this is simple squaring up.

 

Don’t be suprised if you enter on a break out from the congestion that it comes back to the breakout point before continuing.

If you are in or around news on a break out be careful. Sometimes this sort of news based break out can simply reverse and go back into the channel.

So trading congestion is pretty simple.

Look for the break, the hook and the go. *BUT* be careful around news this can cause a false break, especially if the move is against the trend.

 

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