News & Analysis at your fingertips.

We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site.

0

Notifications

Notifications below are based on filters which can be adjusted via Economic and Webinar Calendar pages.

Live Webinar

Live Webinar Events

0

Economic Calendar

Economic Calendar Events

0
Free Trading Guides
Subscribe
Please try again
EUR/USD
Bullish
Oil - US Crude
Mixed
Wall Street
Mixed
Gold
Bullish
GBP/USD
Bearish
USD/JPY
Mixed
More View more
Real Time News
  • Looking for a new way to trade reversals? One of the most used reversal candle patterns is known as the Harami. Like most candlestick formation patterns, the Harami tells a story about sentiment in the market. Get better with trading reversals here: https://t.co/rfwUWJfbz9 https://t.co/rChAkNqPL2
  • Long wick candles are recurrent within the forex market. This makes understanding the meaning behind these candles invaluable to any trader to comprehend the market dynamics during a specific period. Learn about the importance of extended wicks here: https://t.co/SIpslvhX0J https://t.co/jVxcE1QUBs
  • Safe haven stocks also allow traders to diversify their portfolio and reduce risk. Learn if safe-haven stocks are made for you here: https://t.co/MTc4tUDD6c https://t.co/DOQ6tyzep9
  • Knowing how to accurately value a stock enables traders to identify and take advantage of opportunities in the stock market. Find out the difference between a stock's market and intrinsic value, and the importance of the two here: https://t.co/QszmdZFxlk https://t.co/WQLZ1X7gIY
  • but the next major point in my view to monitor will be 52.76 - at least in the short term.
  • #Brent having broken above the pre-OPEC drop off at 45.51 is a huge deal considering it failed to crack resistance there in August (leading to the invalidation of "uptrend 2") and the psychological significance of that level https://t.co/LkEyRxFhnq
  • The New Zealand Dollar looks poised to extend its push higher against its haven-associated counterparts on robust economic data and a less dovish stance from the RBNZ. Get your $NZD market update from @DanielGMoss here:https://t.co/vytr4OR1Jy https://t.co/ZcxEUWIm8O
  • It seems the markets are riding high, but risk is always lurking around the corner. Consider your escape plan before you find yourself in collapsing market. What are the top havens for different conditions in 2020? Find out from @JohnKicklighter here: https://t.co/1oeXWEsJkb https://t.co/x8uyOHLtgE
  • The Swiss Franc may continue higher against the US Dollar as technical pressure favors USD/CHF bears..Get your $USDCHF market update from @FxWestwater here:https://t.co/yqJbbhAWiu https://t.co/CaMR0Vqd1m
  • The US Dollar lost ground to most ASEAN currencies as Emerging Market assets climbed despite US economic woes. USD/INR is eyeing third-quarter Indian GDP at the end of the week. Get your market update from @ddubrovskyFX here:https://t.co/urDN2b5Nwd https://t.co/toSDbVZCSi
How Confluence Can Give You Confidence in Timing Your FX Trades

How Confluence Can Give You Confidence in Timing Your FX Trades

2013-11-23 16:00:00
Tyler Yell, CMT, Currency Strategist
Share:

Talking Points:

  • Why You Should Look For Multiple Indicators To Agree With Your Trade Idea
  • Setting a Limit & Stop When An Opportunity Emerges
  • Clean Example with NZDCAD – Resistance & Bearish Engulfing Candle

Though one may be overpowered, two can defend themselves. A cord of three strands is not quickly broken.

-Hebrew Proverb

Technical analysis is the study of price action on charts to find behavior patterns that can help you visually see an opportunity to trade or invest. As you can imagine, patterns are something that everyone, even outside of traders rely upon in life. A non-trading example would be a gust of forceful wind and dark clouds likely means a storm is coming.

An issue that comes along in the world of pattern recognition is that one signal or trigger to a typical pattern may simply be noise and not an actual signal to an unfolding event. However, when signals begin to line up and you see multiple signals pointing to an outcome you can be more confident in an outcome. When multiple triggers begin to unfold, this is known as confluence and something that traders should look for, to have an edge before entering a trade.

Learn Forex: Confluence of Factors

How Confluence Can Give You Confidence in Timing Your FX Trades

In the chart above, you can see a technical tool known as a price trendline and Fibonacci acting in tandem as resistance on the Nikkei 225 index. Based on the recent monetary policy in Japan , the Nikkei 225 is testing this line again as it has done over the last 17 years. Of course, there are no guarantees that confluence will result in profitable trades but, confluence can give you confidence that multiple people in the market who use different tools may be looking at a similar point of the chart.

Setting a Limit & Stop When an Opportunity Emerges

How Confluence Can Give You Confidence in Timing Your FX Trades

When confluence emerges, a rather tight stop can be placed with a favorable risk: reward ratio. This is because in a move higher, support or a price floor can likely be seen where price turned around. In terms of profit targets, you can either look to pivot resistance in an uptrend or a prior high as a technical target.

Learn Forex: Confluence was also present on GBPAUD with Ichimoku

How Confluence Can Give You Confidence in Timing Your FX Trades

Clean Example with NZDCAD – Resistance & Bearish Engulfing Candle

How Confluence Can Give You Confidence in Timing Your FX Trades

NZDCAD is not a headline currency but technically, it can offer clean set-ups. Currently we’ve seen a push off of resistance near 0.8570 but technically speaking it wasn’t an ordinary push. What NZDCAD displayed was a Bearish Engulfing candle off of a major level. A Bearish Engulfing candle shows that bulls who think the price will go higher have completely lost the battle for the day as price action on the selling day engulfed price action of open to close on the prior day.

In addition, you’ll notice that below the price action the RSI is showing negative technical divergence. Negative divergence takes place when a momentum indicator like the RSI makes a lower high as price action above makes a higher high. The significance from a momentum point of view is that divergence shows you that price may no longer have the support that it previously had. A break of relative support can place price in a vacuum to the downside.

Closing Thoughts

Confluence of technical indicators is a simple way to see if a signal to enter a trade has more credibility than when only one signal is present. By looking for confluence, you will likely not see as many signals but you can be a bit more confident when you place your stop and look to enter the trade. As you can imagine, on trades like NZDCAD, a break of a confluence of resistance at 0.8780 is also significant. A break of this level could mean that the bulls are back in charge and this pair could march higher.

Happy Trading!

---Written by Tyler Yell, Trading Instructor

To be added to Tyler’s e-mail distribution list, please click here.

New to the FX market? Learn to trade like a professional with DailyFX!

Signup for this free “Trade like a Professional” certificate course to help you get up to speed on Forex market basics. You can master the material all while earning your completion certificate.

Register HERE to start your Forex learning now!

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES