Confluence Trading- Crypto Academy / S5W6- Homework Post for @reminiscence01

Hello everyone!

I am glad to be participating in the cryptoacademy once again. In this week being the 6th week, professor @reminiscence01 in his lecture post professionally explains how to make better and more profitable trade decisions using the art of "Confluence Trading".
Therefore, this homework post is submitted in fulfillment of the tasks given in the lecture post mentioned above.

Task 1

Explain Confluence trading. Explain how a trade setup can be enhanced using confluence trading.

Confluence Trading is a familiar term because it has been used previously on several occasions in the cryptoacademy, however, let us refresh our memory a little bit.

Confluence Trading concerning cryptocurrency trading refers to the combination of two or more different Trading strategies to analyze a single scenario on the price chart before making a comprehensive trading decision.

The combination of different analytical ideas when scrutinizing a trade set-up can save a trader from a ton of heavy financial losses. These analytical ideas range from price action, chart patterns, technical indicators to even full-blown trading strategies.
Confluence Trading enhances the profitability of a trade set-up by helping the trader filter out false signals and fake-outs on the price chart. An example of how Confluence Trading enhances a trade set-up is explained below.

_{Source :screenshot}

The BNB/USDT pair chart above is a good example of Confluence trading. In the chart, you will notice the formation of a double top pattern which is a strong trend reversal signal. To Further confirm the trend reversal signal, I inserted the Exponential Moving Average (EMA) indicator into the price chart.
You will notice how the price of BNB falls below the EMA indicator once the price completes the formation of the double top pattern. This indicates a bearish trend confirming the trend reversal signal.

Task 2

Explain the importance of confluence trading in the crypto market?

Cryptocurrencies are volatile and are risky to trade with, therefore, there are times where a trader uses his /her most profitable trading strategy to enter a trade but will eventually incur a loss due to false signals and fake-outs embedded in the market.
These false signals or fake outs which caused the trade set -up to fail might have been filtered out, only if the aforementioned trader used an additional indicator that would have detected the false signals early enough in the trade set-up This kind of scenario makes you consider the importance of Confluence Trading in the crypto market

To further explain the importance of Confluence Trading, highlighted below are some other reasons why confluence Trading is so important in the crypto market.

• Confluence Trading helps the trader gain confidence in his trading decision. Lack of confidence can lead to poor decision-making. For example, missing the right entry point in a trade because of indecision or fear that your trade might fail.

• Confluence trading creates room for innovation allowing traders to create and personalize better trading setups using multiple trading techniques

• Confluence trading also helps a trader manage risks involved with trading cryptocurrencies, considering its volatile nature.

• Confluence trading helps the trader maximize profits and minimize losses through the improvement of the trader's trading analysis.

• Confluence trading helps the trader guard against false signals and fakeouts in the market. Even trend reversal, continuation, and breakout signals are easily scrutinized, filtered, and confirmed using Confluence trading.

Task 3

Explain 2-level and 3-level confirmation confluence trading using any crypto chart.

There are various levels of confluence trading techniques but In this section, we will be talking about only 2-level and 3-level confirmation confluence trading techniques.

---

2-level confirmation Confluence Trading

The 2-level confirmation confluence trading techniques refer to a trade set-up that is analyzed with two(2) trading ideas or trading strategies. This is the simplest form of Confluence Trading as a combination of either a ‘price action and a technical indicator’, ‘market structure and a technical indicator’ or ‘a technical indicator, and another technical indicator’ is used to confirm trade signals produced by the price chart before the trader enters a trade.

_{Source :screenshot}

The BTC/USDT pair chart above is a great example of a 2-level confirmation confluence trading technique in use. Similar to the previous chart above, this BTC/USDT chart formed a double tops pattern after rejecting a resistance level twice. This can be considered as the first level confirmation of a strong reversal in trend from bullish to bearish that will most likely break the previous support level.
Second, the EMA indicator was inserted into the price chart and you can notice how the price of BTC falls below the EMA indicator at the second top pattern which rejects the resistance level. The concord between both analyses confirms the trend reversal signal.

---

3-level confirmation Confluence Trading

The 3-level confirmation confluence trading techniques refer to a trade set-up that is analyzed with at least three(3) trading ideas or trading strategies. This is a more complex form of Confluence Trading as a larger number of analysis tools are used to execute proper analysis on the price chart, however, it is proven to be more effective due to the higher accuracy it offers the trader.

_{Source :screenshot}

The BNB/USDT pair in the screenshot above shows a perfect example of a 3-level confirmation confluence trading technique when a rising wedge pattern, an overbought Relative Strength index(RSI) peak, and the fall of the price below the EMA indicator all confirm the trend reversal signal the begins a bearish trend.

Task 4

Analyze and Open a demo trade on two crypto asset pairs using confluence trading. The following are expected in this question.

a) Identify the trend.
b) Explain the strategies/trading tools for your confluence.
c) What are the different signals observed on the chart?

In this section, I will be using the paper trading feature on tradingview to analyze and open a demo trade on the TRX/USDT pair in a one (1) minute timeframe price chart.

_{Source :screenshot}

In the screenshot above, you will notice how price ranged for a while before entering into a steep bearish trend characterized by lower highs and lower lows.

Price fell rapidly from 0.08270 USDT to 0.08210 USDT in a matter of minutes.Price bounced off a support level at 0.08210 where the RSI indicator also showed that price was oversold signaling a trend reversal.

Price immediately rose above the EMA indicator, confirming the start of a bullish trend. Therefore, I entered a trade at 0.08239 USDT to take profit at the resistance level where the price would have risen back to 0.08270 USDT.

_{Source :screenshot}

In the screenshot above, you will notice a clearer view of the resistance and support levels, with the change in the value of the demo account balance after taking profits from the trade.
In summary, the Confluence Trading technique used in this trade setup consists of the combination of the RSI indicator, the EMA indicator, and the idea of support and resistance levels in a market structure.

Conclusion

Technical analysis can become very frustrating if a trader is caught out by false signals or fakeouts in the crypto market. However, using Confluence Trading can change the face of trading for many traders. Risk management when trading "volatile" cryptocurrency is easily maintained through confluence trading.
I will urge traders to use indicators and strategies which they fully understand to get the best out of Confluence trading.
I am glad and grateful to be part of this week's activities in cryptoacademy.

Thank you for reading!