Confluence is beneficial because it does more than show you a good setup in isolation — it shows you a good setup in context of the market. This is essential in Forex to avoid fakeouts, 10/8/ · The Confluence Method v The Confluence Method is a mechanical strategy that aims to capitalize on a W1/D1/H4 chart scenario (trend, range and counter trend) with a Confluence is beneficial because it does more than show you a good setup in isolation — it shows you a good setup in context of the market. This is essential in Forex to avoid fakeouts, 10/8/ · The Confluence Method v The Confluence Method is a mechanical strategy that aims to capitalize on a W1/D1/H4 chart scenario (trend, range and counter trend) with a ... read more
This is the basic idea behind trading Forex confluence. And there are many ways a trader can apply the concept of confluence into their trading plan. A technical confluence occurs when you find a trade setup using multiple technical trading tools, and all of these independent forms of analysis indicate a similar impending directional price movement. For example, when you are using an oscillating technical indicator like Stochastics, it can generate an overbought market condition signal near a major resistance zone.
This resistance zone could happen to be a Big Round Number BRN as well. If you place a sell order based on these several technical factors, then you are essentially utilizing technical analysis confluence. This is the daily chart of the EURAUD forex pair. In this example, we can see that the Stochastics indicator was clearly trading above the 80 level labelled number 1. Forex traders consider such market conditions as an indication of a possible overbought market.
When the market is in an overbought market condition, it signals that the price could soon reverse the course of the prevailing trend or likely start a retracement move in the opposite direction.
Secondly, as soon as the EURAUD price reached the 1. The formation of the downtrend line signaled the diminishing bullish momentum above this price level. Next, you can see the EURAUD price respected the 1.
Many professional forex traders consider price levels ending with round figures to act as important psychological levels, so this support and resistance level had special significance.
When there is price confluence at a support or resistance level, it often attracts large-scale institutional traders, market makers, and other participants who find these price levels opportune areas to place their pending orders. Thus, buyers and sellers engage in a sort of tug of war around these types of major confluence price levels.
The trade setup in figure 1 is showing a confluence on the price chart of three different technical factors — 1 a technical indicator signaling a possibility of an imminent change in trend, 2 formation of a downtrend line restricting the EURAUD price from moving upwards, and 3 a price squeeze favoring the downside, which also happens to be around a psychologically important big round number. When the EURAUD price closed below the pivot zone around 1. If you had placed a sell order as soon as the price closed below the 1.
Figure 2: Using Different Technical Analysis Indicators to Find Forex Confluence. Let now look at the daily EURUSD chart in figure 2. Here we applied two different technical analysis indicators to identify a confluence: 1 a simple moving average SMA crossover of SMA 5 and SMA 21 , and 2 the Average Directional Movement ADX indicator with default settings. At this point, you could place a sell order based on that single factor. However, if you closely examine the previous few buy and sell signals generated by the ADX indicator, you can see that due to a range bound market condition , most of these signals did not result in any significant directional movement of price.
Hence, if you filter the ADX signal by using a trend analysis tool like a moving average crossover, it will likely increase the odds of catching an emerging trend.
Four days after the ADX signal, you will notice the SMA 5 crossed below the SMA 21 labelled number 2. Within three days of the moving average crossover, the EURUSD started a downtrend that pushed the price lower by around pips. By applying confluence on the price chart, you could have entered the market at the right time and made a profit on this trade.
Using a confluence signal that incorporates several technical analysis methods is a very powerful trading strategy in your arsenal. However, when developing and using confluence based trading systems, you need to have a thorough understanding of the indicators you are using. Many professional forex traders consider price levels ending with round figures to act as important psychological levels, so this support and resistance level had special significance.
When there is price confluence at a support or resistance level, it often attracts large-scale institutional traders, market makers, and other participants who find these price levels opportune areas to place their pending orders.
Thus, buyers and sellers engage in a sort of tug of war around these types of major confluence price levels. The trade setup in figure 1 is showing a confluence on the price chart of three different technical factors — 1 a technical indicator signaling a possibility of an imminent change in trend, 2 formation of a downtrend line restricting the EURAUD price from moving upwards, and 3 a price squeeze favoring the downside, which also happens to be around a psychologically important big round number.
When the EURAUD price closed below the pivot zone around 1. If you had placed a sell order as soon as the price closed below the 1. Figure 2: Using Different Technical Analysis Indicators to Find Forex Confluence. Let now look at the daily EURUSD chart in figure 2. Here we applied two different technical analysis indicators to identify a confluence: 1 a simple moving average SMA crossover of SMA 5 and SMA 21 , and 2 the Average Directional Movement ADX indicator with default settings.
At this point, you could place a sell order based on that single factor. However, if you closely examine the previous few buy and sell signals generated by the ADX indicator, you can see that due to a range bound market condition , most of these signals did not result in any significant directional movement of price.
Hence, if you filter the ADX signal by using a trend analysis tool like a moving average crossover, it will likely increase the odds of catching an emerging trend. Four days after the ADX signal, you will notice the SMA 5 crossed below the SMA 21 labelled number 2.
Within three days of the moving average crossover, the EURUSD started a downtrend that pushed the price lower by around pips.
By applying confluence on the price chart, you could have entered the market at the right time and made a profit on this trade. Using a confluence signal that incorporates several technical analysis methods is a very powerful trading strategy in your arsenal.
However, when developing and using confluence based trading systems, you need to have a thorough understanding of the indicators you are using. For example, in figure 2, we used two sets of indicators, but note that both of these are trend following indicators. If we used an oscillator like Stochastics with ADX, the oscillator might have generated an oversold signal when the downtrend was about to start. Such contradictory signals could turn out to be confusing and may prove to be a hindrance when trading in real time.
This is especially true, in the lower time frames, where the price can move very fast in a short period of time. Therefore, when you apply a confluence based strategy to trade forex, you should be very careful in how you pick your technical analysis tools. Whenever possible, stick to using trend following indicators during trending market conditions.
On the other hand, if the market appears to be range bound, use tools suitable for a consolidating market, such as oscillators. But be careful of redundancy — essentially that you are not combining highly correlated trading indicators and considering that as a valid confluence. Instead, you can use simple price action confluence and bar patterns to successfully trade as well.
And trading with simple price action confluence is what I prefer the most. Figure 3: Using Pin Bar Price Action to Trade Forex Confluence. Using this chart example, we will be discussing how you can combine simple price action bar patterns in conjunction with major support and resistance levels.
Take note that we have identified two major pivot zones that acted as both support and resistance levels during the second half of Is price action confluence trading the holy grail of forex trading? It is simply one technical analysis method of looking at the prices in the forex market and trading it.
The 4 confluence trading price action techniques I have shown you are the ones that tend to appear more regularly. Now that you know what they look like, your job is to keep watching the charts to see if they form and then take trades on those confluence trading setups.
Well, I got good news for you! It is not difficult if you know what to look for. What Is Confluence Trading? In this post, you will get your answer to what is confluence trading.
Well, in this post, I will: show you what confluence trading really is and if you are a price action trader, this trading technique is one that you should know. No excuse! give you 4 major areas or levels where confluence trading really happens where you can take high probability trades and trading.
give you examples of the confluence trading setups you should be looking out for.
In Forex, especially while studying technical analysis, you may hear the term confluence used in conjunction with trade setups. What is confluence and why should you care about it as a Forex trader? Confluence refers to any circumstance where you see multiple trade signals lining up on your charts and telling you to take a trade. Usually these are technical indicators, though sometimes they may be price patterns. It all depends on what you use to plan your trades. A lot of traders fill their charts with dozens of indicators for this reason.
They want to find confluence — but oftentimes the result is conflicting signals. This can cause a lapse of confidence and a great deal of confusion. Some traders add more and more signals the less confident they get, and continue to make the problem worse for themselves. Most Forex traders who succeed do so with a minimal number of indicators on their charts.
Two or three is a good number of indicators to aim for. Some traders use just one, and some use none at all — though it is harder to find a good trade context if you do not have any at all. Here is a good example of using confluence to place a great Forex trade.
Say you trade using price patterns formed by the candlesticks on your chart, and you see a pattern which signals a "buy" trade. Maybe you have tested and discovered that Fibonacci retracement levels can help you find a good context. If your price pattern, which signals "buy", lines up with a Fibonacci retracement level, which is acting as a support , then that is a great example of an "A" trade confirmed by confluence the price action and the Fibonacci level. Note how this is not a cluttered Forex system.
Aside from the Fibonacci levels, there are no indicators drawn on the charts at all. All you are looking at here are price patterns. You only overlay the indicator when you want to check the context surrounding a price pattern.
If you notice that the retracement level matches up with a pivot point you have been keeping an eye on, that is another form of confluence. This is only one example of using confluence in Forex.
There are many different ways to use confluence. Systems are as varied as personalities. Test different combinations of signals to determine the best Forex indicators for you to use. Experiment and see what gives you the best statistical results over a large number of trades using historical data. Maybe you will find that using confluence of moving average crossovers combined with Fibonacci levels gives you great results.
Maybe you will discover that Bollinger bands used in conjunction with support and resistance tests well. One thing, which is important to note, is that when you experiment with confluence, you need to choose indicators that are independent of each other — not calculated using each other. Otherwise, you will stack up time lag, which will only decrease accuracy.
Confluence is beneficial because it does more than show you a good setup in isolation — it shows you a good setup in context of the market.
This is essential in Forex to avoid fakeouts, unexpected reversals, and trading against the trend. In a way, most Forex systems are built on the idea of confluence. If you have not found a system you like, this is how you can start building one from scratch. A good system will show you what is going on right now, and how it fits into the bigger picture — and how you can profit from that knowledge. If you want to get news of the most recent updates to our guides or anything else related to Forex trading, you can subscribe to our monthly newsletter.
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10/8/ · The Confluence Method v The Confluence Method is a mechanical strategy that aims to capitalize on a W1/D1/H4 chart scenario (trend, range and counter trend) with a 10/8/ · The Confluence Method v The Confluence Method is a mechanical strategy that aims to capitalize on a W1/D1/H4 chart scenario (trend, range and counter trend) with a Confluence is beneficial because it does more than show you a good setup in isolation — it shows you a good setup in context of the market. This is essential in Forex to avoid fakeouts, Confluence is beneficial because it does more than show you a good setup in isolation — it shows you a good setup in context of the market. This is essential in Forex to avoid fakeouts, ... read more
But triangles also project future support and resistance levels. Thus, buyers and sellers engage in a sort of tug of war around these types of major confluence price levels. Note how the 1. If you place a sell order based on these several technical factors, then you are essentially utilizing technical analysis confluence. Figure 3: Using Pin Bar Price Action to Trade Forex Confluence.
The next day, on July 29,the USDCAD penetrated below the 1. Each tool and indicator has its specific use depending on the stage of the TOFTEM confluence trading forex. Such patterns are: morning stars Doji candles hammers a. Therefore, the trade opportunity was a result of a combination of factors aligned at a confluence area. by colibritrader.