How Can Confluence Boost Your Forex Trading Profits?
Confluence is a term that not many forex traders are familiar with, however it can help you to dramatically boost your forex trading profits. It basically refers to two objects coming together, and in forex terms it basically refers to two indicators coming together.
This is important because it can help you find lots of high probability set-ups where the odds of success are stacked massively in your favour. For example if you look at the daily price chart of a particular currency pair, you may find that there are times when there is both a key pivot point and a major fibonacci level around the same price level on the chart.
Therefore you can expect this level to act as a major area of support or resistance. You will generally find that the price will rebound off this level in most instances because so many traders and financial institutions from all around the world are watching the exact same price levels, and will trade accordingly.
You can also look for confluence amongst specific technical indicators. I personally like to plot several (exponential) moving averages on my charts because they not only give you a snapshot of the short, medium and long term trends at any one time, but they also give great trading signals when there is confluence amongst most or all of these indicators. For example if you open up a chart of one of the major forex pairs and add EMAs with settings of 5, 20, 50 and 200, you will see exactly what I mean.
One of the best times to consider opening a position is when all of these indicators (along with the actual price) come together and are all very close to each other. This tells you that the market is currently in consolidation mode, and therefore not worth trading at the current time, but it also lets you know that there could be a big breakout coming in the near future.
Some of the best breakouts occur after a period of sideways movement, so you should watch for the price to move away from these indicators and break upwards or downwards. Then once the short term EMAs start moving in the same direction, there is very often a long and sustained breakout, which can potentially yield hundreds, if not thousands of pips on the daily chart.
So the point I want to get across is that looking for confluence on various different indicators can help you to find really good set-ups, and can help you boost your overall profits. You don’t need to waste your time scalping the markets all day because just one or two of these trades could give you even greater profits on the longer time frames.
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