Before we talk about the Forex business it is very important to know that Forex is a risky business and it should be approved by the government of your country. Few countries do not allow Forex due to the problem of money laundering. Otherwise, Forex is a good business as a part-time or full-time job opportunity.
Confluence is one of the most important principles in finding a high probability trade setup in your trading journey. So the first and foremost thing is what confluence means? Confluence means meeting off, merging, convergence. The word means the meeting of two rivers.
Why Convergence Happens?
In the context of trading, convergence happens when different technical signals or technical strategies merged and all the traders anticipate the same price movement. If you look at people’s views towards the market with different lenses, for example, some people look at support and resistance levels and buy and sales based on that. Some people look at the trend lines support and resistances. Other people look at Fibonacci levels. If the price retraces to the 61.8% Fibonacci level or 30.2% Fibonacci level that is strong support. Some people look at candlesticks, they look at bullish pin bars or others use Bollinger Bands, etc. Everyone is looking at different things.
What Convergence Indicate A Trader?
So what will happen if different angle signals all say the same thing at a particular point of time and that is called the convergences? So does it happen often, no it does not? when it happens it is very powerful because all the rivers flow to a particular place making a very strong current. All traders are looking at different things and they all say the same thing and all traders are expecting the price to move in a certain direction and it is all about a self-fulfilling prophecy which means when everyone thinks the price will go up so everyone buys and the price goes up.
How to Trade from Convergence?
So what is resistance? Resistance is a point up to where price rises and it reverses down. In this way consecutive resistance form resistance level. It tells us that at the resistance level supply outweighs demand. Most sellers and buyers are waiting at that price level. Traders wait for the price to move towards a resistance, the moment they see it hits the resistance and it turns down, they start to sell. The opposite thing is support. When the price goes down hits a certain level and reverses back up and in this way, we get a support level. Whenever it touches that level it goes up which tells you at this level demand exceeds supply. At that point, many buyers waiting and their buying reverses the price back up again.
Eventually, if the price can break a previous resistance level what does it means? It means that demand exceeds the overhanging supply so price breaks above that level and so the previous support is now resistance.
The variation of this support and resistance would be the trend lines. The traders look at the uptrend and downtrends. It also gives them an idea about support and resistance and also says when is the best time to enter and exit the market.
Other technical indicators that traders use are candlestick patterns. Price first comes down and then we find a bullish pin bar at the bottom which tells us price is going to reverse. So if you buy over (you put stop loss) the next day it goes up above that high at which point you make a profit.
Another method traders use is Fibonacci levels. It is a mathematical calculation based on a golden ratio of numbers and the theory says that when a price is an uptrend, for example, it has not gotten a straight line but the prices tend to go up.We call that an impulsive movement when it corrects down before going so high. For example, the price comes like a wastebasket or like a breathing pattern. It has got a breathe in before it brings long up. So what is the best time to enter? So the best time to enter is when it breathes in. You just buy at the breathing out point.
Now the question is how would you know that it has finished its retracement? So if the price retraces us any of these magical numbers like 38.2%, 50%, 61.8% it is highly unlikely that the retracement is done, the price is going to continue to the new path. The most reliable level is 61.8 %.
So different traders use different strategies like
❏ Moving Average
❏ Support and Resistance
❏ Fibonacci Levels
❏ Candlesticks Patterns
Improve Trading Accuracy Through Confluence
So the confluence of any three technical signals is good and if it is a combination of 4 signals it is even excellent which gives a very probability of winning.
So this is what professional traders do to get in the market and they use multiple analyses to trade confidently. So if you need more information you can take help from experts.
It also takes lots of effort, analytical ability, research and passion to do this business. , The more you study, the higher will be your analytical skills. You can learn most of the things on the internet. So read a lot and apply this in your demo account. It will widen your outlook and broaden your knowledge about Forex trading.