This worked fine when compiling my thesis last year.
% for bibliographic entries
% following hanging indent code (also in workscited) taken from
% [NTG-context] Re: Again: "hanging" for a lot of paragraphs?
% ~ Patrick Gundlach
\def\hangover{\hangafter=1\hangindent=0.5in}
\definestartstop[workscited][
before={
\page[no]
\indenting[never]
\startalignment[left]
\bibliography{Recommended Reading}
\stopalignment
\setupwhitespace[medium]
\bgroup\appendtoks\hangover\to\everypar
},
after={
\egroup
\indenting[yes]}]
\starttext
\startworkscited
\input{knuth}
\stopworkscited
\stoptext