 Hi in this video. I'm going to be talking about confluence and What confluence is and one of the problems that? Confluence can cause in trading so confluence refers to areas on the price chart That has evidence supporting either a buy or sell trade the more evidence a level has the more confluence The trade is said to have ultimately confluence is you're trying to put together a and gather evidence supposed to put together a picture and a story and Supporting your your your buy trade or your sell trade. So you're using the you know indicators tools You know price action at a level to support a buy or a sell trade now Confluence is not a trading strategy Right. So what I mean by that is You have to have a strategy a foundation. So you have to have Rules of engagement for you to enter a trade first Confluence should be used in addition to your trading strategy so What I'm gonna do is I'm gonna go to a whiteboard and I'm gonna see if I can explain this so Let's say that you are a trend trade and you're looking for a level to trade off of right and Prices are making higher highs and high lows now your strategy For entering a trade is for example, you need to see a fib level Right, so you've got maybe the thirty eight point to the sixty one point eight percent level We're even the seventy eight point six All right, so you've got to see a fib level, right fib retracement level as a lot of train traders do use Fibonacci and then obviously you have to have your foundation. So you have to see It at a if you're buying it has to be a support level, right? So You want to see some support and So you look back on the chart and you've seen that the support level has been used as resistance and support various times in the past so that confirms You know one of your It ticks one of your boxes and then what you want to see as well is maybe some bullish price action, right? So bullish price action So like a pin bar or an engulfing candle or anything bullish, right? So this would be your minimum requirement for your Trading strategy, yeah ATG Why right So At this level here You've got all that aligned for your buy trade now Confluence now comes in When you want to see a bit more evidence supporting This level here. So you've got your strategy here and then maybe what you're seeing is Some sort of moving average, right? so there might be a moving average also coming up and It might be the first time it's tested the moving average, right? So now you've got Moving average. Yeah, a moving average bounce Right or dynamic what it's called dynamic support You might also have An RSI Over over sold level here. So for example on the indicator you might put an indicator on your chart And then you've got maybe, you know the levels 70 and 30 or whatever your Or whatever your Your settings are on the RSI So that would be 70 and that would be Right and then Prices are in between here 70 and 30 and all of a sudden around here You've got prices being over sold Comes out of the 30 zone, right? So then you've got the RSI oversold Right So this Would be Added Confluence right to that trade And why would you need to use? Confluence if you have a trading strategy? Well a lot of traders use confluence maybe to add to extra So a lot of traders will use confluence for things like position sizing so Whereas their strategy they might risk maybe, you know 1% on a trade Now if they have maybe a lot more going for the trade then they might risk, you know 2% they might feel to themselves This is What I you know, I want to risk because I have all these things going for it, right? So you've got at this level you've got Fibonacci traders You've got support and resistance traders You've got price action traders looking at this level, then you've got traders that use moving averages Here that are looking to get in at that level and you've got Traders that use the relative strength index indicator, right? So you've got lots and lots of Demand yeah and demand And Deep right and demand is a buying Right, there's loads of buy orders supporting this area here So maybe you might want to put a little bit, you know more on to a trade so Just to summarize what you need to use confluence for is In addition to your strategy do not use confluence by itself Don't just look at a level one day and say okay This has a moving average and it has an RSI But it doesn't have any price action But I've got enough right you have to have a strategy because Confluence can change there are so many different indicators hundreds If not thousands of different types of indicators and what happens is is if you don't have a set of rules of engagement Your confluences will always change and you won't have any Consistency in your strategy if you're just saying one day you want to see a moving average or an advanced pattern Like a bat pattern at a level and then the next trade you're looking at You know the MACD or a Bollinger band indicator It's just not going to give you the consistency in the trading that you want to see start off with your strategy as Your foundation that's your reason to enter and if you want to use confluence In addition to give you the confidence matter of fact to enter a trade Then you can possibly you know add some extra indicators on there just to support your trade if you wanted to You know go bigger in size if not, then you know you go for your normal position size so I also want to talk about Analysis paralysis which can happen with Confluence and I will show you that on a price chart So here we are on the euro dollar sixty minute chart and the area I want to focus in on is this area right? here So for traders Who don't have a? foundational type strategy and are just purely using confluence To trade and really don't have any consistency What will happen is is? You will suffer from again something called analysis paralysis So let's say for example. We have a level of you know support and resistance. So we've had massive rejection here. We had Rejection here. So prices came up Had some bearish price action and then in the same our prices came up came back down now Turn support. We have a bit of support support bit of resistance Prices have come back up into this zone now again, and we're at some resistance now if you haven't got a foundational set of rules, and you're just looking for rules as far as using indicators and just using confluence and trying to find reasons as to why you should be Entering a possible short trade What tends to happen is you will Freeze again analysis Paralysis so you'll look at these indicators. So we've got them MACD. We've got the relative strength index We've got the stochastic which are quite popular Indicators plus we've got some moving averages on here as well. So We can see here that prices are at a level of interest a resistance level now If you're waiting for the perfect setup, so we're looking for You know reasons why we should be entering shorts. Let's go down to the stochastic, right? So the stochastic at this point in time here Was really not showing anything It wasn't showing any kind of overbought or oversold reading So we would we couldn't enter there the RSI again is not showing any kind of oversold or overbought reading in fact the MACD is showing Momentum to the upside until it crosses right here All right, so even with a MACD cross we might have one reason to enter now. Let's look at some moving averages We've got the 2050 and I think it's the 100 on here Period moving average now. We have prices in between Dynamic support and resistance So we've got prices being supported by this moving average is clean moving average I think is the 20 moving average as well as the blue moving average and then it's prices in between this The the yellow or the golden one which is yes, which is the 100 period moving average so You're missing out potentially missing out on a trade to the downside because of the fact that you've got so many indicators conflicting with signals and I Wouldn't say necessarily missing out on a trade. You'd probably just say all right then. Well, I wouldn't take the trade but let's say for example, you had a strategy where you said okay if prices are at a support or resistance level and Again, I see some bearish price action against resistance, which we got this this pinball Right, and that is your basic strategy Resistance bearish price action That is your reason to enter That should be your reason to enter if that is the two criteria that you need to enter a trade Everything else should be supporting if it doesn't support your trade to the downside then Maybe you just enter at a normal position size confluence Really again should just be any additional evidence To support your trade, but it should not be the reason or you should not find reasons as to why This should be your trade and again going back to analysis paralysis You will have these situations where traders will just freeze on a trade and not take this trade They would be paralyzed pretty much by the fact that and overwhelmed by you know conflicting signals or not having enough signals on a price chart and Yeah, so Just use confluence as an in addition to your trading strategy. Hopefully that helps and If you do have any questions, just email me at info at trading 180 comm