Getting Confluence

Filed under: Learn Forex Trading |

You may hear this word, “confluence” being banded around in the world of forex trading. It refers to when you get a number of signals all pointing to the same thing. The reason confluence is so important is because it tips the odds of probability further in your favour, and as a result, your chances of being profitable in the long term drastically improve. So how exactly can you achieve a confluence of signals?

 

To begin with, you have to learn to use a number of technical indicators and get comfortable and familiar with using them. For example, to begin with, you could put a couple of moving averages on your charts (an 8-day exponential moving average and a 21-day exponential moving average are good ones for the daily charts). This will help you to assess the trend. If you trade with the trend, this would be one layer of confluence.

 

Another thing you could do is to mark areas of support and resistance on your charts. If price were bouncing off one of these areas, then that would constitute a second layer of confluence.

 

Price action signals are also very power indicators of a price reversal. These are patterns such as pin bars, inside bars, and engulfing patterns. A price action signal would then constitute a third (and probably most important) layer of confluence.

 

If you can then add to all these things something else, such as a move to the extreme edge of a Bollinger band, or an RSI divergence, then you have an extremely powerful area of confluence on your chart, and you should probably take the trade.

 

Trading with confluence is all about getting added confirmation about your idea to trade. It puts the odds of probability in your favour, and in the long run, it should be enough to make you some good profits in the forex markets.

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