Either a 61.8% or 38.2% Fibonacci retracement point is required.Typically, we require at least two points, including the starting base, to be seen before drawing in a trendline. Plotting the trendline is important here.
#How to use confluence effectively full
For that reason, either a full round number (1.2300), or a mid-level number (1.2350) needs to be seen clearly around the area. Most of us already know the importance of these values. Therefore, if we’re trading a H4 setup, we want to see the trend clearly painted on this timeframe. Personally, we only look on the traded timeframe for this. What we don’t want to see is a smooth A-B leg and a distorted C-D leg. Ideally, the waves will have little interference. What we mean by this is the trading zone has to converge with either a supply or demand area, or a support or resistance barrier. With that in mind, here are the following structures needed to fulfil an A1 formation: This is a setup which although may not be as regular as A2 and A3 setups, it tends to carry far more weight concerning the win/loss ratio. Personally, we designate each trade setup as either being: A1, A2 or A3.Īn A1 setup is a first-rate trade. Some traders may only require two things to come together to form a zone, while another trader may need at least five concepts to merge before taking a trade.įor the purpose of this segment, we’ll layout what we consider to be sufficient confluence. How will a trader know when he/she has enough confluence to trade confidently? Clearly, this will be trader dependent. This is where we get into the nitty-gritty. How much confluence should a trader look for? As long as you see that your account is growing over the long term, a losing trade is not a cause for concern.
![how to use confluence effectively how to use confluence effectively](https://i.pinimg.com/originals/7c/fd/29/7cfd29fd3cb9c426dbdfed847d1f14df.png)
However, if you take into account the setups that show strong confluence will, on average, produce reasonable results, you can profit in this business. Expecting each trade to win will be extremely frustrating because, well quite frankly, it WILL NOT happen! It’s important to bear in mind that while trading areas of confluence does provide an edge, it doesn’t mean that every single trade will produce a profitable result. For those who follow our daily reports: IC Markets Market analysis you may recall that this was actually a trade our desk showed a lot of interest in.įorming this trading zone, we had the following converging structures:Īnd for traders who prefer to use a combination of price action and indicators, one could have simply added the RSI on the chart above as additional confirmation, which happened to show divergence at the time (see above). The next chart shows how one can exclusively use price action to establish a trading area.
![how to use confluence effectively how to use confluence effectively](https://i1.wp.com/atlassianblog.wpengine.com/wp-content/uploads/image2013-4-9-132114.png)
The small green zone marks where a possible reversal can (and in this case, did) take place.Ĭomplementing the zone, the following indicators came together: The chart below (H4 EUR/USD) provides a visual example of how traders can use indicators to form confluence. No matter which path you choose, having a thorough understanding of each complementing component is vital. For instance, some traders solely rely on indicators to develop a trading zone, whereas others prefer to focus on price action and there are also those that favour a combination of the two.
#How to use confluence effectively how to
‘An area in the market where two or more structures come together to form a high-probability buy/sell zone.’Īs highlighted above, understanding what confluence is and how to use it effectively can be challenging. Trading confluence can be defined in a simple sentence: