Discussing the article: "Price Action Analysis Toolkit Development (Part 58): Range Contraction Analysis and Maturity Classification Module"
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Check out the new article: Price Action Analysis Toolkit Development (Part 58): Range Contraction Analysis and Maturity Classification Module.
Building on the previous article that introduced the market state classification module, this installment focuses on implementing the core logic for identifying and evaluating compression zones. It presents a range contraction detection and maturity grading system in MQL5 that analyzes market congestion using price action alone.
One of the most reliable observations in price action analysis is also one of the simplest: sustained expansions are often preceded by periods of relative calm. After a strong directional move, momentum slows, participation balances, ranges tighten, and short-term volatility contracts. In numerous instances, this compression phase sets the context for the next directional expansion.
Mark Minervini describes variations of this behavior through the Volatility Contraction Pattern (VCP). Other traders refer to it as “tight price action” or a “coiled spring,” while John Bollinger formalized part of the idea with the well-known Band Squeeze. Regardless of terminology, the behavior itself appears across markets—forex, indices, equities, and crypto—because price rarely transitions directly from trend to trend without an intermediate balancing phase.
The practical challenge has always been the same: how do you objectively distinguish between a high-quality compression phase—characterized by genuine absorption and repeated boundary interaction—and a low-quality sideways drift that offers little structural information?
Most visual tools approach this problem using bands, channels, or volatility measures. While effective, these methods often depend on derived indicators that respond after structure has already formed. Pure discretionary price action traders solve the problem visually by counting tests, observing wick behavior, and judging absorption by experience—but doing this consistently across multiple charts is difficult.
Author: Christian Benjamin