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What is confluence in technical analysis?

Confluence in technical analysis refers to the occurrence of multiple indicators or signals aligning to suggest a certain price action. In other words, it is the convergence of multiple technical indicators or patterns at a specific price level, providing stronger evidence for a potential trade or investment.

For example, if a stock is showing a head and shoulders pattern on the daily chart, and the 50-day moving average is also crossing below the 200-day moving average at the same price level, this would be considered a confluence of indicators. This convergence of signals would provide a stronger indication of a potential downtrend and a possible entry point for a short position.

Confluence in technical analysis can also refer to the alignment of multiple time frames. For example, if a stock is showing a bullish trend on the daily chart and the weekly chart, this would provide a stronger indication of a potential uptrend and a possible entry point for a long position.

Confluence can also be used to identify potential areas of support and resistance. For example, if a stock’s previous high and a key Fibonacci level are at the same price level, this could indicate a potential area of resistance. On the other hand, if a stock’s previous low and a trend line support are at the same price level, this could indicate a potential area of support.

In conclusion, confluence in technical analysis refers to the alignment of multiple indicators or signals at a specific price level, providing stronger evidence for a potential trade or investment. By identifying confluence, technical analysts can make more informed decisions and increase the probability of successful trades.

“Thinking is easy, acting is difficult, and to put one’s thoughts into action is the most difficult thing in the world.” – Goethe

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