Congestion Areas in Forex

Congestion Areas in Forex

Will these currencies continue in the range or breakout?

Forex Congestion Areas
Forex Congestion Areas Getty Images

As shown below, both the EURJPY and AUDUSD are trading within a congestion area (also known as range-bound markets).  Typically, congestion areas occur when the price is seeking a new area of support or resistance.

Typically, traders have two options when trading congested markets.  One option is to wait for the market to break out of the range but another option is to trade when the price reaches either the top or bottom of the range but fails to close outside of the range area.

For example, on the AUDUSD 240-minute chart, the top of the range is .8120 and the bottom of the range is .7991.  If price fails to close above the .8120 area, then the price is likely to return to the bottom of the range or .7991.  Also, notice during the previous congestion area (line of white dots with red ATR above price), as price approached the congestion area, bullish candlesticks formed (bullish candles are hollow and bearish candles are solid).  This was a good indication that the top of the range would be exceeded if bulls continue to control price.  However, currently on the approach to the top of the range, a bearish candle is forming.  However, the price bar will not be complete until 10 am New York time so waiting for the completion is important because bulls could re-enter after the US opening at 8:00 am.

 

Forex Congestion Areas AUDUSD Another example, using the daily EURJPY is shown below.  As you can see, the price is stalling at the top of the range (136.00).  The last bar was still bullish and completed a three bar reversal to the upside.  This indicates that bulls are trying to break through the resistance at 136.00.  A close above 136.00 will potentially signal another upmove is likely to occur.   If price fails to close above 136, then a test of the bottom of the range is possibly likely (133.59).

 

Forex congestion Areas EURJPY

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