CONFLUENCE TRADING | CRYPTO ACADEMY | S5W6 | HOMEWORK POST FOR @reminiscence01
Good Day Everyone, this my Homework post on the topic CONFLUENCE TRADING as taught by professor @reminiscence01.
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Explain Confluence trading. Explain how a trade setup can be enhanced using confluence trading.
Explain the importance of confluence trading in the crypto market?
Explain 2-level and 3-level confirmation confluence trading using any crypto chart.
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?
When we talk of 'confluence', we are simply talking about combination of things or people. But in relation to trading, confluence trading can be described as the combination of different strategies to derive a specific and a clear signal. This method of trading is usually adopted by the technical analysts. These particular traders believe that one needs to join 2,3 or more strategies together to pick a profitable signal or to interprete the market structure/price action better.
In trading, depending on just one strategy or tool could be disastrous as the strategy/tool might not just be enough to give a perfect entry because the market is a very tricky one as we have false breakouts, reversals, retracenents that could rubbish one's analysis base on just one single strategy adopted, hence the need for using multiple strategies to trade, this phenomenon as explained above is known as confluence trading.
To enhance a trade set up using confluence trading, all what the trader needs to do is to use different tools on the trading charts, these tools could be good indicators or trading patterns which could be 2 or 3 or even more. Subsequently, the trader must note this, all the tools employed must agree on thesame signal, what I mean is this, they must all have thesame result or signal, if one of the tools is saying otherwise, then the traders needs to be patient and take a critical look at his analysis and the chart before placing a trade. Keeping to these instructions can effectively enhance a trade set up for profit maximization.
SCREENSHOT TAKEN ON MT5 APP
Looking at the DOG/USD chart above on the 1H timeframe, we see that the confluence trading method was employed here using three different tools namely Bollinger band and the stochastic oscillator indicator.
Also, the double top pattern was noticed, the two indicators and the double top pattern all point out at a bearish reversal which actually happened as seen on the chart. This perfectly illustrates how a trade set up can be enhanced using confluence trading.
I will be highlighting some of the importance of confluence trading below :
Confluence trading reduces the odds of loosing a trade, it increases the chances of winning it base on multiple confirmation hence it also help to maintain good risk management.
Confluence trading eliminate doubts and reduces fear of loosing while trading. There is this confidence it brings or gives to the trader.
It helps in making better or right decisions, when a trader uses or combine multiple tools to pick out a signal, there is 90% chance that the trader will make the right and better decisions using the confluence tools.
Engaging in confluence trading enables a trader to identify good trading set up, ordinarily without using some of these tools, there are some good set ups one may not see and eventually miss.
It also prevents the trader from falling into some market traps such as retracenents, trend reversals, fake signals and false breakouts. All these deadly mistakes can be avoided using the confluence trading.
2-LEVEL CONFIRMATION CONFLUENCE TRADING
2-Level confirmation confluence trading simply means using at least two different trading tools or strategies to pick a trade signal or a perfect entry. This can be done using indicators or market patterns that one is very familiar with to analyze the trading chart. This can be illustrated in the image as seen below.
SCREENSHOT TAKEN ON MT5 APP
Looking at the DSHUSD chart above, we can see that 2 confluence tools were utilized here. Firstly, I observed that there was a break in Market structure whereby the price broke the ascending treadline (trend forming higher-highs and higher-lows), I also observed that the stochastic indicator is reading above 80, so it was the perfect set up for a bearish reversal entry as seen on the chart, prize went down after this two strategies were in confluence.
3-LEVEL CONFIRMATION CONFLUENCE TRADING
This involves the use of at least 3 - trading tools or strategies to pick a trade signal or a perfect entry. This can also be illustrated in the image as seen below.
SCREENSHOT TAKEN ON MT5 APP
Looking at the XLMUSD chart above, we can see that 3-level confluence tools were utilized. Firstly, I observed that there was a break in Market structure as the price broke the descending trendline after forming Lower-Low and Lower-High. As seen on the chart, the break in the market structure resulted in a bullish reversal, but we can also see that this price movement was further confirmed by the stochastic indicator which was reading below 20' and as well as the RSI indicator which was reading below 30'.
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?
SCREENSHOT TAKEN ON MT5 APP
Looking at the chart of UNI/USD above, I was able to spot a perfect entry for a 'BUY' position using three confluence tools. Firstly, I used my trendline to figure out the market structure which was a bearish trend forming lower-low and lower-high, but at a point i circled on the chart, there was a break in the market structure which signals The reversal in trend, this signal was further confirmed by the readings on stochastic oscillator and RSI which were below 20 and 30 respectively. After ensuring that all these tools were in confluence, I proceeded to place a 'BUY' position.
SCREENSHOT TAKEN ON MT5 APP
As seen above, this is the update on the trade I took, the movement of price in the direction of my trade proved my analysis were correct.
I also took a second trade on the SOLUSD chart as seen below.
SCREENSHOT TAKEN ON MT5 APP
I also used a trendline to figure out the market structure first and I observed that it was a bearish trend but at a point the price broke the trend and market structure signalling a reversal in trend. I used the stochastic oscillator and RSI to further confirm this, and I notice both the stochastic and RSI were reading below 20 and 30 respectively which means the tools are in confluence. I then proceeded to place a 'BUY' trade again.
SCREENSHOT TAKEN ON MT5 APP
The image above is an update on the trade I took, though the price retraced back to the support level but the price later went further up to confirm that my analysis were correct.
SCREENSHOT TAKEN ON MT5 APP
The image above is the result of the two trades I took for UNIUSD and SOLUSD respectively, as seen above, both were in profit.
Confluence Trading is an essential system of trading that should not be trivilized by traders. It possesses enormous importance as explained in this post. Using two or three or even more confluence tools will really help traders to make entries with accurate precisions, there will be less confusion, mistakes and misjudgements.
However, one needs to be sure of the confluence tools he is using, these tools should be at least 80% accurate so as to expect better result and not coplmplicate issues.
It's been great learning about this very important aspect of trading. Special thanks to professor @reminiscence01 for putting this wonderful piece together. I have learnt a great deal and will study more on this topic to improve my trading prowess. Thanks !
Hello @feyol55, I’m glad you participated in the 6th week Season 5 of the Beginner’s class at the Steemit Crypto Academy. Your grades in this task are as follows:
Observations:
Excellent chart analysis.
Recommendation / Feedback:
Thank you for participating in this homework task.
Thanks professor @reminiscence01 for the wonderful assessment, I will keep improving to give the best.