Congestion Index for Identifying Price Breakouts

Summary

The congestion index measures how widely closing prices have ranged over a chosen lookback period. It subtracts the lowest close from the highest close, divides that difference by the lowest close, and expresses the result as a percentage. A trader could use the measure to identify periods when prices have stayed within a relatively narrow range and watch for a subsequent breakout.

The document provides the calculation but no example, threshold for defining congestion, entry or exit rules, backtest, or performance evidence. The index describes recent price range rather than predicting the direction or reliability of a move. Its usefulness therefore depends on selecting and validating a lookback period and combining the reading with a defined trading plan. The remaining text is privacy boilerplate and does not add trading guidance.

Key ideas

• The index scales the high-to-low range of closing prices by the period's lowest close.
• A trader may use the measure to identify price consolidation before looking for a breakout.
• The document does not specify a threshold, trading rules, or empirical results.
• The index alone does not indicate which direction a breakout may take.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.