As of 09/09/2024   Indus: 40,830 +484.18 +1.2%     Trans: 15,635 +208.10 +1.3%     Utils: 1,040 +11.07 +1.1%     Nasdaq: 16,885 +193.77 +1.2%     S&P 500: 5,471 +62.63 +1.2% YTD  +8.3%   -1.7%    +17.9%    +12.5%    +14.7% Overview: 08/14/2024     42,000 or 39,500 by 09/15/2024   16,200 or 15,300 by 09/15/2024   1,100 or 1,000 by 09/15/2024   18,400 or 16,650 by 09/15/2024   5,750 or 5,375 by 09/15/2024
 As of 09/09/2024   Indus: 40,830 +484.18 +1.2%     Trans: 15,635 +208.10 +1.3%     Utils: 1,040 +11.07 +1.1%     Nasdaq: 16,885 +193.77 +1.2%     S&P 500: 5,471 +62.63 +1.2% YTD  +8.3%   -1.7%    +17.9%    +12.5%    +14.7% Overview: 08/14/2024     42,000 or 39,500 by 09/15/2024   16,200 or 15,300 by 09/15/2024   1,100 or 1,000 by 09/15/2024   18,400 or 16,650 by 09/15/2024   5,750 or 5,375 by 09/15/2024

# Bulkowski's Congestion Quiz

Look at the chart of two fictitious ascending triangles on the daily scale. The triangle is outlined in blue with a horizontal top trendline and an up-sloping bottom trendline. Both A and B show upward breakouts but there is a difference between the two charts.

Which setup (A or B) represents the best trading opportunity?

The difference, if you didn't find it, is in the five days leading to the breakout. In A, price makes a straight-line run but in B, price runs into a congestion area in the five days before the breakout.

I proved in a study that the differences between trading a chart pattern with a straight-line run (A) and a congestion area (B) is not huge. In the straight-line run, on average, the rise after the breakout will be further, but the risk of failure increases, too. Throwbacks will occur more often and that is usually a bad thing.

When looking for chart patterns, trade those with a congestion area forming just before the breakout. If a straight-line run appears, then consider waiting for a throwback to occur and complete. Once price starts moving up again, then enter the trade.

-- Thomas Bulkowski

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