Congestions Indicator

Congestions is an indicator for Metatrader 4 that identifies prices staling points, while making sure there was significant demand or supply over these bars (these are congestion bars). Based on the congestion bars, it then draws the congestion zones, which are zones where the price is likely to stall or reverse in the future.

 

Congestion Bars

These bars show the points of buying and selling identified over a range of bars. The volumes and price formation play an important role in identifying whether the market is normally trending, or if it’s stalling due to buyers/sellers coming in. These are slow buying/selling patterns, much easier to miss compared to the standard ones, but just as important nonetheless.

 

The indicator will show these bars as small diamonds below or above price candles, as green or red. They can also be set to be drawn as rectangles instead.

 

  • When these bars show up, a sideways movement or an upturn is likely soon
  • When there is a confirmation of strength by the next few bars, a congestion zone is formed, and entries can be considered ahead (more on the subsection below)
  • Look out for the low of the strong congestion bar – a breakout to the downside often means a downtrend will ensue. Likewise for weak congestions

 

Congestions in AUDUSD

Congestion Zones

A congestion zone is a critical price area, where there was confirmed supply/demand. These zones are useful to keep track of since there will be a big amount of volume orders at these prices.

 

A strong congestion is formed when there are large traders buying the market, over a series of bars, which is detected by the prices and volumes behavior. Two things can then happen:

  1. Buying doesn’t have a follow-up (no upside reaction). This can happen in the case the buying comes from short positions closing, or from a much shorter-term timeframe speculation. The congestion bars should be seen as a temporary setback in the downtrend.
  2. The subsequent prices won’t go below the congestion bars, and it may even rally a bit. This is a follow-up, that shows the market is being supported.

 

The second case is when the congestion zone will be drawn, within the price range of the congestion’s bar high and low. In this price area, you can expect almost surely more buying to show up in the future, and a resistance to the prices.

 

Long-term and Short-term Zones

The indicator will distinguish between long-term and short-term zones, based on the number of bars that the zone is active for. Short-term zones are much more likely to be broken, and should be seen as a minor resistance – if the prices got back to a buying zone so rapidly, it’s probably because there wasn’t enough buying to sustain higher prices.

 

Very High Volume and High Volume Zones

The volume of a zone is determined by the volumes when the congestion was formed, compared to the session average. The indicator can be set to draw just very high volume zones, just high volume ones, or both (default). In very high volume zones, a high volatility is more likely due to the amount of orders present in the cluster.

 

How to Use

Whereas standard resistances don’t take into account the volume traded at the high, Congestion Zones looks for the volumes to determine whether it’s a significant resistance or not formed from a buying/selling zone. Therefore, when price gets to one of these zones, either a ‘touch-and-reverse’ reaction is to be expected, or more congestion bars, which would signal re-accumulation. If that’s not the case, it means the buyers aren’t active enough, and the congestion zone is probably going to get broken anytime soon – the buyers who had bought previously, have either unloaded their positions already, or the buying that took place could have been due to traders just taking profits (common on long downtrends), which won’t give enough support for an uptrend to take place.

 

Support holding signs:

  • Prices ‘touch-and-reverse’ – prices don’t stay very long inside the zones, as such would signal lack of accumulation from the previous buyers
  • If in uptrend, congestion bars near the drawn zone show more buying and the trend being supported. Going to a lower timeframe can be useful to provide a better timing
  • Beware of fake-out bars used to hunt stops along these areas. These can happen inside, or slightly below a zone

 

Support breakout signs:

  • Steep downtrend into a zone usually precedes a breakout
  • Prices inside the congestion zone for several bars (10+), or not rallying shortly after touching the zone
  • On a long downtrend, zones represent minor setbacks, and breakouts are more likely

 

Other uses:

  • High volatility is more likely near congestion zones
  • Avoid trading in highly congested zones (the chart will have congestion zones just above and below the current prices). These are also usually volatile zones, where sudden movements in either way are likely
  • Even if broken, a zone is a resistance to prices nonetheless. To break a previous buying zone there needs to be significant effort, and those sellers will most likely prevent prices from rising through their selling point
  • Watch out for the breakout of a congestion zone in a lower timeframe – a true breakout will usually show high volumes

 

Congestion Bars Meaning  Congestion Zones Meaning  Congestions Explanation  Touch and Reverse UCAD M15  Touch and Reverse GU M15  Congestion Bars on Zone in Uptrend  Fakeout Congestions  Steep downtrend into zone  Sideways inside zone  Congestion in higher timeframe  Highly Congested Area  Entry long-term congestion  Congestion breakout entry

 

Alerts

The indicator has 3 type of alerts implemented:

  1. There is a congestion bar – alerts when a strong or weak congestion bar appears (drawn as diamonds, as default)
  2. The price goes in a congestion zone – this alert will activate on the first time of this occurrence, for each of the drawn zones.
  3. The price breaks out a congestion zone – this alert will activate on the first time of this occurrence, for each of the drawn zones.

 

Alerts indicator