Confluence is a term derived from financial analysis, which refers to the consistent appearance of multiple technical indicators or market signals at a specific time or area, thereby enhancing the reliability of trading signals. This method is widely used in financial market analysis to increase the accuracy and success rate of trading decisions.
In the stock market, investors usually rely on multiple technical indicators such as moving averages, relative strength index (RSI) and Bollinger Bands. If these indicators send buy or sell signals at the same time, a "Confluence" point is formed. For example, if a stock price is close to the moving average support level, the RSI shows that the stock is oversold, and the Bollinger Bands also show that the price is near the lower track, multiple signals overlap, and investors may think that this is a good time to buy.
In the foreign exchange market, Confluence is equally important. Traders may watch for overlaps in chart patterns, Fibonacci retracement levels, and important psychological levels. When these technical analysis tools provide similar signals in the same price range, traders will have more confidence to enter or exit a position. For example, when the price approaches a key Fibonacci retracement level and a reversal pattern such as a double bottom occurs, traders may believe that the price has a higher probability of reversal and take a trade.
Confluence is also widely used in the futures market. Traders will consider supply and demand fundamental analysis and technical chart signals. For example, if the supply and demand relationship of a commodity shows that the supply is insufficient to meet the demand, and the price is technically hovering near an important support level, the combination of these two pieces of information may lead traders to choose to enter a long position at this position.
In the field of blockchain and cryptocurrency, Confluence also plays an important role in trading decisions. The cryptocurrency market is highly volatile and the reliability of a single indicator is low, so traders often use Confluence to confirm trading signals. For example, when the price of Bitcoin hovers near an important support level, and on-chain data such as increased network activity and market sentiment indicators turn positive, when these signals work together, traders may believe that Bitcoin has the potential to rise and make a buying decision.