Trading Series 1:1 – The Power of Confluence
PS. Sorry for any bad grammar in advance, I may be good at maths & Trading but English is not my strongest point.
So just to get this series started I just would like to say thank you for your support and purchasing this digital content from myself, it’s really lovely to know that you find my content useful and can in some way learn something that can benefit you in any way possible. These articles will be published every Monday and give opinions and breakdowns on different topics and lessons.
Today’s topic is confluence and how important confluence is when trading and looking for the correction position to enter. For those who are unsure of confluence, confluence is using a mixture of Technical Analysis tools together and in symmetry to provide the best advantage of any position that can be taken.
Confluence Indicators?
So to get started when looking at any chart, the first and probably the most important thing to analysis is to plot your support and resistance lines for price action, support and resistance are easily markable just by seeing price action that has been touched multiple times. Let’s say BTC price has hit $6500 3 times and all these times, bears have came into to defend then this would indicated a strong resistance level, and this goes the same for support as most of you will know. So when looking for the best confluence, if the price is between the support and resistance then I would personally find this to be a “No Trade Zone” just because I would be looking for a entry to long closest to the support line and to possibly short close to the resistance.

The next indicator I normally go to next is RSI “Relative Strength Indicator” as this show the current price momentum in line graph formation with values that allow you to see when the current price is either over-sold or overbought. The default values your RSI will start with are 30–70 which when the line is under 30 shows the current price is oversold and a “good buying zone” and when above 70 shows the price is overbought meaning a “good selling zone” in the most basic terms. First I personally like to change the values to 25–75 which then gives me a much better rate of success rate when looking price entry and definatly a much better confluence.
So my favourite method of using RSI in confluence with current price is to try to find a setup that shows the switching of momentum..In this example shown below, we can clearly see that price has risen again to another higher high but compared to RSI which shows a lower high this is a very strong signal for a reversal/change in market momentum. This works very well in confluence with support and resistance as if you can see price in nearing a support/resistance and price is getting closer but RSI is dropping off then this can be the start of strong confluence to open a position.

After seeing a great confluence between the RSI and Support/Resistance the next indicator I like to check is the MACD as it gives such more detailed analysis of the price direction and market momentum in a more detailed way than just using the RSI, these two work really well together in my opinion. As the MACD consist of two lines which are generally the moving average values if these two lines cross over then this is a signal that the trend of the market is changing, as-well as just watching for a crossover I actually like to watch MACD for the ticks which are displayed between the lines, these ticks allow you to see how strong the momentum is and exactly when the momentum has stopped pushing in one direction and ready to reverse. Looking in the example below we can see that before the lines cross over the red tickers show an increase or decreasing trend and also how strong the momentum is turning, the larger the ticks length the higher the momentum strength.
So MACD combined with RSI gives a really good idea as to how the market momentum is currently playing out, in the most perfect setup I would personally like to see a oversold coin so less than (30) on the RSI, and then in the MACD I would like to see the ticks are to form a bottom or start to change direction on the 4H timeframe. Then if we combined this chart with the price coming close to a resistance region this would be a perfect example of confluence on a major scale… and give you a much higher chance at getting a successful trade out of your position.

After checking the Support/Resistance, RSI & MACD and finding a great confluence between these indicators another very key indicators that alot of people forget about is candlesticks. Candlesticks are probably one of the first things that people learn when starting to trade and these are still very crucial as you advance your trading skills.
For example if we look below, here are some example of candle stick patterns that are very common when $BTC is trading inside a specified range, two of the primary candles which I like to see when trying to find a perfect setup are probably the “Shooting Star” & “Spinning Top” these candles are very strong indictors that show that momentum could be changing. If we are seeing these candles while the rest of our indicator strongly showing that momentum could soon be changing then this would be the most perfect example of confluence.

Summary
Confluence is a mixture of technical analysis indicators that are all signalling the same potential move in one direction, confluence is probably the best method of getting the highest chance of a successful trade. If you average position has a 50% chance of being a successful trade, then using confluence in the way we talked about above brings the chances of a successful trade to a much higher number that favours your position. Then if we combine this with risk management strategies that will be talked about in next weeks article, running this strategy multiple times can seriously improve your odds when attempting to made successful trade most of the time.
