The Confluence technique is one of the common approaches used by professional traders to identify potential trading opportunities. However, this technique might still be a mystery to beginners. Let's delve deeper into the concept of Confluence and how you can use it to enhance profits in forex trading.
What is Confluence?
Confluence can be interpreted as a condition where other supportive situations occur simultaneously with a particular condition in the market. For instance, if there's an upward trend in the market, and at the same time, there's a crossover with the moving average (MA), along with supportive candlestick patterns, it can be considered as Confluence.
Steps to Determine Confluence Conditions as Opportunities
Here are the steps you can use to identify potential Confluence conditions:
Basic Rule "Trend is Your Friend": Begin by identifying the market trend direction as the foundation of the Confluence technique. This could be an uptrend, downtrend, or sideways movement.
Retracement to Support or Resistance Area: Notice when the price retraces from recent highs to key support or resistance areas. This can indicate potential entry points.
Support from Candlestick Patterns: Observe if there are supportive candlestick patterns, such as pin bars, confirming key support or resistance positions. Valid candlestick patterns can increase the probability of your trading success.
Confirmation from MA Indicator: Pay attention to whether there's support from the moving average (MA) indicator simultaneously. For example, is there a price crossover with MA, or is the price moving in the direction of MA?
Confirmation from Other Technical Indicators: If you're using other technical indicators, ensure there's confirmation from those indicators to reinforce the Confluence conditions.
Once all conditions and situations align, you're ready to open a trading position according to the identified direction.
The Importance of Confluence in Trading
Although several supportive situations occur in a Confluence condition, it doesn't guarantee that you'll always make a profit. However, utilizing the Confluence technique can help you be more structured in your trading. By waiting for several supportive conditions to occur, you'll become more practiced in patience and make more well-planned decisions.
To provide an analogy, think of your trading as managing a casino business. While the business might not yield profits every day, in the long run, they always turn a profit. Trading isn't a sprint; it's more like a marathon that requires endurance and consistency.
By using the Confluence technique, you can increase the probability of your trading success and navigate market fluctuations in a more structured and measured manner.
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