Trading congestion areas on ES and YM this morning, using a forty-five minute chart to identify the congestion area resulted in quick profits. Trading congestion areas are typically dangerous as traders often get whipsawed in these areas and lose their profits. However, with our proprietary algorithm that is incorporated into the Trend ATR, this is not an issue. In fact, as long as the range is large enough for profits, traders can actually trade these areas for profits.
Trading Congestion Areas on ES
On the forty-five minute chart, the Trend ATR indicator has clearly identified the congestion area by plotting both the ATR stop (plus sign) and the white dot (top of the congestion area). Price reaches up to the congestion, cannot break it so the most natural course is to return to the ATR stop (plus sign). This setup on the forty-five minute chart indicates to zero down to the three minute chart to see what price is doing. Price is at the ATR stop on the three minute chart giving a very low risk entry into the retracement to the ATR stop on the forty-five minute chart. Once price moves in the direction of the trade and produces profits, the aggressive stop kicks in and an exit is generated at 1875.25. The trade makes a total of 5 1/2 points or $275 per contract.
Trading Congestion Areas on the YM
The Dow Jones gives almost an identical setup. The forty-five minute formed a congestion area and price tested the congestion dot without breaking it. We zero down to the three minute and price is testing the ATR stop. Again, a very low risk entry point. Price moves down and produces profits kicking in the aggressive stop algorithm. The trade exits at 15,936 producing a 30 point profit or $150 per contract.
The congestion area identification on the higher timeframe, with room for profits, was key in this trade setup. If the congestion area had been smaller, the trader could not have taken the trade because the potential for whipsaw would have been greater.
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