Confluence trading is the process of combining several trading techniques to increase the likelihood of a successful trade. It involves combining several indicators, technical analysis tools, and chart patterns to generate a trading signal. The word confluence derives from a geographic term that refers to the convergence of two streams or rivers. Many technical analysts use the concept of confluence to help them identify trend reversals.
There are many technical analysis tools available, and some are more useful than others. One of the more popular ways to find confluence is by using Bollinger bands. These bands Top Ten Forex Pairs to Trade in 2018 help traders analyze trends based on the strength of the trend. Moreover, the same bands can help traders identify price trends.
Another method of trading using confluence involves finding points of confluence. This is a good way to become more consistent and precise in your trades. While you ll never become rich overnight, you ll make a lot of money by making a series of carefully-planned trades. By finding points of confluence, you can be more consistent and precise in your decisions. You can also use a rule of thumb that says you should trade only when there are at least three reasons why you should make the trade.
Using candlestick patterns is also an essential strategy when using confluence trading. This technique helps traders identify price action patterns, which can give them an edge over the market. In addition to candlestick patterns, you can also use other technical indicators, such as support and resistance levels. When you see a price action pattern forming around a major support or resistance level, you can enter the market with more confidence.
While confluence can increase your chances of winning a trade, it can also lead to failure. It s crucial to remember that even if a setup has four or five factors of confluence, it can still fail. Ultimately, becoming a profitable Forex trader is a marathon, not a sprint.
A good example of price confluence trading is when two price levels meet and price moves in one direction. If the price reaches a lower support or resistance level, you should buy. On the other hand, if it moves above the support or resistance level, you should sell. Some traders suggest entering trades at five-pips above or below the resistance or support level.
A technical indicator that signals a trend change is the SMA 5 and SMA 21. The EURAUD price was unable to cross the SMA 21. In this case, a confluence trade signal would have provided more support or resistance for the EURAUD. If a trader could have entered the market at that point, they could have profited over 700 pips over two weeks.