Yesterday’s I gave an illustration of using the early range as a filter for later trades. This is really just a more generalized example of a technique I have pointed out before - defining congestion as not being able to escape the range of a single bar.

If a long series of bars have either their highs or lows inside the range of an earlier bar, I consider that congestion. Since I know that during tight congestion areas I have a much higher percentage of losing trades, I’ll try to wait for some type of breakout.

Non-Trading

I always have a 15 minute chart visible on my trading screen so I don’t lose track of the context of my trades. When we’ve had a series of days with limited market movement, I’ll pay even more attention to that time frame — not to trade it, but to keep myself from inventing trades that should have been avoided.

On this 15 minute chart I’ve drawn yellow horizontal lines showing the high and low of a specific bar. Yesterday, once we had bounced from the previous day’s low, there were only two bars that fell outside of that range, and one of them occurred during the 15 minutes after the stock market closed.

Today the same thing happened with the first bar of the day. We gapped up, but that first 15 minute bar set the day’s range, and only three bars managed to push their way outside it’s grasp. (The low of the unnumbered bar at 10:00 actually matched the first bar’s high.)

Were there trades today? If you needed to trade, you could find reasons. For example at the yellow “X” there was a nice Fibonacci cluster. It’s a 38% retracement from the bottom yesterday. It’s also a 78% retracement from the low of today. And it’s a 162% A-B-C move from the noon high. All of these measurements are extremely precise.

On another day it would have been a perfect entry, but today it’s inside congestion with a much lower probability of success. A good weekend project is to examine recent losing trades and find out how many could have been avoided by seeing congestion earlier. Sometimes you can improve your bottom line by simply passing certain types of trades.

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