All these strategies are based on setups that have prior market reading knowledge, which is just as important as the pattern itself. We recommend learning with Forex Academy traders to contextualize the market so we are always aware of the present situation.
That said, let’s see what this strategy consists of and how we apply it to the market.
A confluence is nothing more than a price level where two or more key levels converge which acts as support or resistance. If you are in a Bull market context and you see that the price falls back to an area where two or more supports come together, you will have a pattern to enter the market long.
We are going to see some real examples in the graphs so that we can understand better what we are showing.
On this chart, we see the Dow Jones index in the 60-minute time frame. A few days ago, the price had decreasing highs, which allowed us to draw a bearish guideline. That guideline was broken with an upward momentum, which turned the old resistance into a possible future support zone if I were to pull back on it.
Looking at the short term, we also observe that the latest market minimums were increasing, a situation which always traces a bullish guideline. We see that there is an exact figure where these two guidelines converge and that the price comes to a support level near this figure. This gives us a very good area to incorporate a long, protected by two supports. Also, in the graph, we can see that the 200-period Moving Average is moving just below it, which provides even more value to the area.
In the image, we can see the DAX index in the 1-minute chart. We observe how the price is producing decreasing maximums which allows us to draw a bearish guideline.
In the first half of the current session, the price opened with a bearish gap and closed with bullish momentum. Then the market turned down to a bearish momentum that ended with a false dilation of the minimums. If we throw the Fibonacci retracements on that bearish momentum, we can see how the guideline in f62 converges in the same area, creating an important resistance where the price is likely to rebound. The red arrow would be the entrance area in this case.
In those examples, you cannot appreciate if we have a context for or against, because that requires a much deeper analysis of the different times frames. But as we have already mentioned, to learn that you would have to study with the team’s traders in the live market.
If we combine a favorable context, that is, one which tells you that the market is likely to go in one direction, and a zone of confluences where the market can support and continue to favor the context, we will be ready for a very powerful setup.