Congestion Entrance Price Action | Forex Factory

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Congestion Entrance Price Action

  • #1
  • First Post: Edited Aug 22, 2009 3:08pm Aug 15, 2009 10:25pm | Edited Aug 22, 2009 3:08pm
Trading Type:
Congestion entrance

Definitions:
1. Trend - is based on the traditional HH HL or LL LH. Heres a link to understand price action trend. http://www.tradeology.com/priceaction.html
2. Direction - the current bar closes below or above the previous bar highest high or lowest low.

Higher Time Frame Rules:
Rule 1 Identify the trend based on a higher starting time frame that is also a multiple of a smaller time frame of 4 or 5. Starting time can be, previous month's end, beginning of the year, previous week's open, etc... The idea is to pick one time and use the price at that time as your reference price to determine if the current trend is up or down.
Rule 2 Next bar closes within previous bars range, this is congestion entrance.
Rule 3 mark the highest high and lowest low of these two bars.
Rule 4 switch to your lower time frame multiple of

Lower Time Frame Rules:
Rule 5 identify the next close lower than the previoous bars low and place entry.
Rule 6 Set stop loss at the highest high of previous bars.

Profit taking is up to your own discretion.Ideas welcome.

Graph: * I will update graphs later based on the rule 1.
This example is based on shorting the market and the inverse is true for entering long any trade.

Objective:
To make this trade as profitable as possible with the least amount of risk.In other words make a high P/L multiple.


Note:
Any suggestions on how to improve on this idea will be updated on this first post to make it easier to find for those who have an interest.
Attached Image(s) (click to enlarge)
Click to Enlarge Name: HTF.jpg Size: 141 KB
Click to Enlarge Name: LTF.jpg Size: 114 KB
  • #2
  • Aug 16, 2009 12:59am Aug 16, 2009 12:59am
Hi mrjtdude

Can you post a few more examples - I think i understood what you are saying but not sure - maybe i could throw up a chart or 2 to see if i understood properly
  • #3
  • Aug 16, 2009 4:56am Aug 16, 2009 4:56am
Hi,
how to set entry&TP?
Thank you!
  • #4
  • Aug 16, 2009 8:57am Aug 16, 2009 8:57am
Welcome back mrjtdude,

another old member since 2007 wit only 31 posts, coming to give back to the community, another price action system, the only difference is that you have not told us how profitable and how long you have been on the system.

I notice that members between 2006 and 2007 are all coming back with their systems to teach us

Where did you all go? or are you in lurking mode since then.

If its price action am with you on that, naked trading.

Welcome back sir

kos
John 3:16 - From THIS love no power on earth can me sever.
  • #5
  • Aug 16, 2009 9:37am Aug 16, 2009 9:37am
I like your simple system, thanks for share, it's very helpful

_______________

Bollinger Bands MACD

.
  • #6
  • Edited 12:14pm Aug 16, 2009 11:46am | Edited 12:14pm
Pervaz:
Post a chart of how you understand it then i will try to answer your question. Others may have the same problem in understanding the setup.

yuyudada:
Target Profit can be anything you may already have or use a simple multiple of your stop loss on lower time frame (ie 3x , 9x or whatever). Idea is always money management. The smaller your time frame the lower the stop loss amount but also more chance for your stop loss to be taken out. The higher your time frame the more loss you will have with less chance of your stop being taken out.

Kosomolate:
How long have i used this system? I just made it up yesterday but i have always been a fan of using a form of price action. Price seems to give you handle before any indicator ever will. I rather be in the moment when I trade than hanging in the past.

yuyudada:
Entry order is after the close ...so you would buy on the open of the next bar.

errich fx:
Thanks. If you got any ideas on how to improve it I am all ears. It's all about sharing and making things better.

mikey109021:
Questions answered

Everyone is welcome for changes or new insights on improving the trading idea.
  • #7
  • Aug 16, 2009 6:41pm Aug 16, 2009 6:41pm
Rule #1 is faulty.

Pick a start time. The price will be the same on all charts. (Starting Price)

Compare that price with the current price. Current price will either be above, below or equal to the Starting Price.
If you only trade long, then you can't always be wrong.
  • #8
  • Aug 17, 2009 8:06pm Aug 17, 2009 8:06pm
Quoting FrankenPip
Rule #1 is faulty.

Pick a start time. The price will be the same on all charts. (Starting Price)

Compare that price with the current price. Current price will either be above, below or equal to the Starting Price.
Rule 1 states that you need to identify the trend and direction on a higher time frame.

How does what you wrote above relate to rule 1?
  • #9
  • Aug 17, 2009 8:15pm Aug 17, 2009 8:15pm
Quoting Limstylz
Rule 1 states that you need to identify the trend and direction on a higher time frame.

How does what you wrote above relate to rule 1?
Attached Image (click to enlarge)
Click to Enlarge Name: ! gbppip.gif Size: 11 KB


I believe FrankenPip is telling you that the chart period does not matter. Use a date/time to get your reference price. Is the current price above or below your reference price?

Examples: Weekly open price. Monthly open price. Daily open price. Price 5 days ago. Etc....

In the chart, the current price is below the previous daily open and previous weekly open but above the previous monthly open. What is the trend?
  • #10
  • Aug 17, 2009 8:18pm Aug 17, 2009 8:18pm
mrjtdude,

I trade a very similar setup that has been profitable for me for the past few months, so I know this works. I wouldn't say that you made this up, however. You have discovered this along with many others including myself. The fact that you came to your own conclusions by yourself is a step in the right direction.

The only suggestions I have for you are to look at which higher timeframe to look at against which lower time frame (read up on harmonic trading and cycles for more information into this), and daily range trading alongside support and resistance (so many great threads about this and so many facets) for targets.

I used to use Fibonacci in my trading (not knocking it, it works!) however I have since found using various S/R works better.

Good luck

No need to elaborate any further. Trading is a discovery
  • #11
  • Aug 17, 2009 8:23pm Aug 17, 2009 8:23pm
Quoting gbppip
Attachment

I believe FrankenPip is telling you that the chart period does not matter. Use a date/time to get your reference price. Is the current price above or below your reference price?

Examples: Weekly open price. Monthly open price. Daily open price. Price 5 days ago. Etc....

In the chart, the current price is below the previous daily open and previous weekly open but above the previous monthly open. What is the trend?
Potentially you could be in a ranging market or consolidation period (potentially lasting a number of hours or even days). Your current price means nothing if you don't take it into context, which can only be done by looking at a chart or a spreadsheet with the previous x prices including the current price.
  • #12
  • Aug 17, 2009 10:59pm Aug 17, 2009 10:59pm
Yea, I don't think anyone has come up with anything truly original for some time. It's all been done before I agree. Maybe I should have rephrased it to stumbled across, wasn't really saying I had come up with anything new. I'm not the best communicator in the world.

Harmonic trading and cycles, daily range sup. res. will read thanks for the info.

Frankenpip and gbp:
I'm an idiot but I'm not following how that relates to higher time frame trend with support and resistance. HH HL LL LH. I understand your referring to a time stamp and the relation of weekly and monthly opens to the current price. If you were to rewrite the first rule how would you do it. I will rewrite it if it's flawed. Thanks for the info.
  • #13
  • Aug 19, 2009 6:18am Aug 19, 2009 6:18am
Hi mrjtdude

What is the logic behind switching to lower time frame, why not just put your stop order below the congestion area once you have established the direction from the Higher time frame, and your SL on the recent high or low and then your TP the nearest S/R points

Because I know price is in the same point which ever TF you switch to

That's what I do anyway and its working fine, but maybe after your explanations I may see the light in your way.

pls I am looking forward to your response

kos
John 3:16 - From THIS love no power on earth can me sever.
  • #14
  • Aug 19, 2009 6:26am Aug 19, 2009 6:26am
Quoting Kosomolate
Hi mrjtdude

What is the logic behind switching to lower time frame, why not just put your stop order below the congestion area once you have established the direction from the Higher time frame, and your SL on the recent high or low and then your TP the nearest S/R points

Because I know price is in the same point which ever TF you switch to

That's what I do anyway and its working fine, but maybe after your explanations I may see the light in your way.

pls I am looking forward to your response

kos
Kos,

look at Hammers and Walls for perspective. Lets say you establish a wall on the hour time frame. You may not necessarily see a hammer on the H1 time frame, but if you were to look at m15 for instance, you might find a hammer there and thereby complete the scenario for trade setup.

In this instance, we aren't looking for walls, we are looking for HH, HL, LH, LL. We switch to a lower time frame once we have a bar of consolidation (an inside bar). We look for an obvious higher or lower than the last bar close on the lower time frame. As we have switched time frames to a lower one, in most instances, entry will be earlier than waiting for a breakout of the bar prior to the inside bar on the higher time frame.

Please ask if you need further clarification.
  • #15
  • Aug 19, 2009 12:22pm Aug 19, 2009 12:22pm
Quoting Kosomolate
Hi mrjtdude

What is the logic behind switching to lower time frame, why not just put your stop order below the congestion area once you have established the direction from the Higher time frame, and your SL on the recent high or low and then your TP the nearest S/R points

Because I know price is in the same point which ever TF you switch to

That's what I do anyway and its working fine, but maybe after your explanations I may see the light in your way.

pls I am looking forward to your response

kos
I switch to a small time frame to reduce my stop loss size. The market scales in size but it's shape remains the same. I want to be apart of large market moves but i also want my stop loss to be minimal in that I can have a chance for a large P/L ratio. Thats why I switch time frames. All about refining entry to reduce loss and maximize potential profits. Hope that helps.
  • #16
  • Aug 22, 2009 9:51am Aug 22, 2009 9:51am
Hi Limstylz

I wanted to PM you about T101 but your PM and email is not enabled

kos
John 3:16 - From THIS love no power on earth can me sever.
  • #17
  • Aug 22, 2009 9:58am Aug 22, 2009 9:58am
Quoting Limstylz
Potentially you could be in a ranging market or consolidation period (potentially lasting a number of hours or even days). Your current price means nothing if you don't take it into context, which can only be done by looking at a chart or a spreadsheet with the previous x prices including the current price.
Price is always ranging and trending, Mate. Pick 2 prices and you can determine if price is ranging or trending. Pick 2 times and you can determine if price is ranging or trending. Or you can pick 2 prices and pick 2 times to determine if price is ranging or trending. One trader's trend is another trader's range.
  • #18
  • Aug 22, 2009 10:03am Aug 22, 2009 10:03am
Quoting mrjtdude
I'm an idiot but I'm not following how that relates to higher time frame trend with support and resistance. HH HL LL LH. I understand your referring to a time stamp and the relation of weekly and monthly opens to the current price. If you were to rewrite the first rule how would you do it. I will rewrite it if it's flawed. Thanks for the info.
Never said you were an idiot, Mate, that wouldn't be polite.

The first rule could be: Identify the trend based on your starting time. Starting time can be, previous month's end, beginning of the year, previous week's open, etc... The idea is to pick one time and use the price at that time as your reference price to determine if the current trend is up or down.
  • #19
  • Edited 3:01pm Aug 22, 2009 2:31pm | Edited 3:01pm
Quoting gbppip
Never said you were an idiot, Mate, that wouldn't be polite.

The first rule could be: Identify the trend based on your starting time. Starting time can be, previous month's end, beginning of the year, previous week's open, etc... The idea is to pick one time and use the price at that time as your reference price to determine if the current trend is up or down.
Good point. I will add that specific info to the rule but I kind of thought that was implied by using whatever higher time frame someone chooses. Those two time frames I picked were out of the blue.

There is another rule that I will add based on Limstylz suggestion about using multiples of a time frame. With it being 4x or 5x is something I have read as well but not sure of the logic of those multiples other than 4x being a multiple of 2x. Not sure if those numbers really mean anything in dynamic cycles of time (the true reality of market movements).

The biggest problem though with multiple time frames is the cycles of each time frame are dynamic in length. If there was a better way to align those dynamics closer to a given time range then I would guess it would be a far higher probability of making the correct entry. Discrete fourier transform might help some IF you applied some sort of margin of error as to the cycle end and/or beginning.
  • #20
  • Aug 22, 2009 6:36pm Aug 22, 2009 6:36pm
HTF = Monthly
LTF = Weekly
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