Confluence trading is a combination of two or more trading strategies/techniques that come together and form a high probability buy/sell zone in a certain area in the market. Market patterns (Elliott Waves, Harmonic, Head and Shoulders, HH/HL and LL/LH sequences etc.), price action analysis (Support & Resistance, Supply & Demand Zones, Candlestick analysis etc.) and indicators (RSI, Moving Average, Stochastic etc.) are technical strategies/techniques used when trading a confluence setup. The charts below show a confluence trade setup that signals a trader on which side to take the trade.
1. 50 Moving Average (Exponential Moving Average)
2. RSI Indicator (Relative Strength Index)
3. Higher High/Higher Low and Lower Low/Lower High sequence
Strategy can be used on any instrument and on any time frame.
GBPJPY 1 Hour Chart (50 Moving Average)
When price is above 50 moving average signals up move. When price is below 50 moving average signals down move.
GBPJPY 1 Hour Chart (RSI Indicator)
When RSI indicator is above 50 level signals up move. When RSI indicator is below 50 level signals down move.
GBPJPY 1 Hour Chart (Higher High/Higher Low and Lower Low/Lower High sequence)
Higher High Higher Low sequence (Blue Line) signals up trend. Lower Low Lower High sequence (Red Line) signals down trend.
When using all 3 strategies/techniques together a trader can have a better view on which side to trade. Watch for price to trade above or below the moving average then watch for the RSI to cross above or below the 50 level. Use HH/HL or LL/LH (Higher High Higher Low or Lower Low Lower High) sequence breaks for added confirmation. When all 3 strategies/techniques are visible a trader will feel more confident to enter the trade.
We at EWF never say we are always right. No market service provider can forecast markets with 100% accuracy. Only thing we at EWF 100%, is that we are RIGHT more than we are WRONG.
Of course, like any strategy/technique, there will be times when the strategy/technique fails so proper money/risk management should always be used on every trade. Hope you enjoyed this article and follow me on social media for updates and questions> @AidanFX
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