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    Thread: What is confluence trading and how can we define them?

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      Default What is confluence trading and how can we define them?

      I have a very technique question for price action traders, what is trading confluence and how and where we can define them? I do beleive that these concepts are very important and make high win rate in trading when it appears in our charts and a trader be able to detect and trade them.


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      A confluence can be defined as something that stands as a confirmation of another, that means it does not work alone, in the forex market there are many ways we can use this confluence to our advantages in many ways, the first time that I heard about this term was when I visited a website of price action trader, he was explaining the fact that for someone to take a trade there must be some form of confirmation or confluence of factors like a pin bar that is forming around an area of support or resistance, or maybe an Engulfing patterns that takes place around a dynamic support and resistance is a good signal that you can take without being afraid of losing


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      Confluence is a very important factor that we can use in our favour in the charts, you won't see some people entering any trade until they are sure most of the indicators their are using are at a confluence point, so what exactly is a confluence, it is basically a point in the market where two or more levels intersect each other, thus forming an attention or attraction point or confluent point in the market. It also means a coming together of people or things; concourseí, this concept is also used to describe the place where two rivers meet each other, the waves at that place is always higher. essentially , when we look for confluent areas in the market we are looking for areas where two or more levels or analysis tools are intersecting. This is a very powerful method of trading because that is where the idea of A+ set up came out from, where people believe their signal is so certain that it has a 95% success rate.

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      Confluence is similar to confirmation where you need several things to point into the same conclusion. This is a term widely used by the traders to say that they require more confirmation before they take action (whether it's entering the market, exiting the market or others). If the trader is using several indicators to trade then he will only take a trade when the first indicator say sell and the second indicator also give a sell signal.

      There is another term that has the same meaning and that is convergence. You might have heard of the term divergence before because this term is very famous because many trader are talking about it in social media and in forums like this one. Both confluence and convergence can mean the same thing. There is wisdom in this term and that is to wait until they all align and go to the same direction, when the price and indicators all go into the same direction then the move becomes stronger. However, this of course doesn't mean that you will never lose money if you see confluence. There is no 100% in the trading world so you better keep that in mind.


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      Before jumping into confluence definement I think we first need to know what confluence is all about .

      A confluence is a refers to the intersection of two or more key levels or areas of value .
      So when it comes to forex market this things can be support or resistance level, moving average, price action buy or sell signal or the coming together of trend lines.

      The most common type of confluence occurs when a trend line intersects with a horizontal level. These are my favorite areas to watch for buying or selling opportunities.
      In as much as the confluence area do attract traders, but we should not see the spot as an holy gray strategy, it does fail sometimes


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      What is confluence trading and how we can define them?
      This concept is about using several trade indicators together where the combination is called "confluence", meaning something like = "together indication". This brings me to think about politics, where many things pointing in one direction often is attempted to mean just that when in the reality it does not. Sometimes it is true and sometimes it is not.

      Though the idea can be good, i would like to point out that quite often indicators show similar things and that there you would have confluence by default. That would not be a good thing. But if you combine things like PA with an oscillator and a trail then you have something.

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      Confluence trading as it is popular known takes place when several technical indicators give the same signal and a cogent decision is taken based on it.
      This is expected to be a lifestyle (consciously) of a trader. It is embedded in the technical analysis
      Forex trading requires a sound knowledge of technical analysis, fundamental analysis and psychology of trading. As it is very important for every trader to get involved in all these so it is that confluence trading should in no way be ignored for any good reason
      A brief details of all these are as stated below;
      Technical Analysis involves the use of different chart patterns (Candlestick formation, Line charts), Price action, Double top and bottom, Triple top and bottom ,Head and Shoulders, Inverse Head and Shoulders, Ascending triangles and so on so forth to mention but few. All these will help a trader to understand and interpret the direction of the market easily
      In addition to the price action and chart patterns there is a need for the understanding and the effective use of different types of indicators (whether on the main chart or the indicator window). The indicators are in different categories viz Trend, Momentum, Volume and custom ones. They all work hand in hand
      Combinations of these ones (not neglecting intermarket correlation) help the trader ascertain the direction and place the right trade at every point in time
      Fundamental analysis has to do with news and happenings in different countries in question as they have to do with various relevant currencies and pairs .There are various news with different impact (high, medium and low) such as Non farm payroll (NFP), Bank Interest rates, Unemployment change, Housing, Crude oil inventories and so on and so forth. At the every brokersí site there are calendars for all these and various websites who have education and enough information on all these such as ***********, daily**, ************ etc

      Psychology of trading- one of the greatest challenges of trading has to do with greed and along the line a trader wanting to get rich quick end up using unreasonable high lot sizes, overtrading which at the end of the day failure and frustrations set in . These can be taken care with discipline and self control and good psychology
      In technical analysis, confluence occurs when several technical indicators give the same trade signal .This could be the combination of chart patterns with several technical indicators (whether on the main chart or the indicator window) such as Moving averages, CCI, ADX, Envelopes, Bear power, Bull power, Parabolic SAR etc to mention but few
      The ultimate of analysis is to have a high probability (accuracy if possible) trade thus this is expected to be of great help and thus the need for confluence trading. For the sake of necessary emphasis, occurrence of confluence is a confirmation of good technical analysis. Confluence normally leads to greater accuracy and profitability and it the reason why it is worthwhile for every trader to work with the consciousness.


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      In my view and understanding, trading confluence can be very confusing because you will never find all your indicators aligning to give you a particular signal always, if this is the only way you trade in the market I would suggest that you make a serious adjustment in the way you think. In a bid to ensure that they get a confluence of factors before they trade, some people tend to over use this concept unnecessarily, having said that I will like to define a confluence, it is said to be when two or more indicators come together in the market to speak with one voice in telling you to pull the trigger, unfortunately this hardly happens, the dysfunctional nature of it can drive anyone crazy while missing hundreds of pips daily.


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