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. CCI Indicator Period 25 (Commodity Channel Index)
3. CCI Indicator Period 50 (Commodity Channel Index)
Strategy can be used on any instrument and on any time frame.
EURJPY Daily Chart (Bullish Trend)
When price is in a up trend and trading above 50 moving average watch for CCI period 25 to cross below zero level and cross back above zero level while simultaneously the CCI period 50 is clearly above the zero level. If all these conditions are visible then enter BUY trade when CCI period 25 crosses back above zero line with stop loss at previous swing low targeting 1:1.5 RR to 1:2 RR. If the CCI period 50 is below the zero level then the BUY trade setup is not valid.
EURJPY 1 Hour Chart (Bearish Trend)
When price is in a down trend and trading below 50 moving average watch for CCI period 25 to cross above zero level and cross back below zero level while simultaneously the CCI period 50 is clearly below the zero level. If all these conditions are visible then enter SELL trade when CCI period 25 crosses back below zero line with stop loss at previous swing high targeting 1:1.5 RR to 1:2 RR. If the CCI period 50 is above the zero level then the SELL trade setup is not valid.
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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