Trading with confluence

Hi All,

I have been trading Forex for quite sometimes and haven’t had consistant success yet. I started learning trading with price action only with some other signals to increase my chance of winning, I am also trading with proper risk managment.

I normally do not look at fundamental, just try to be as technical as possible, as I am not very good at understsanding and following news.

Below are the things that I looked at before I take a trade, I only trade 1hr, 4hr and daily.

[li]Candle Stick pattern(e.g Pin Bar, doji, etc>
[/li][li]Trend Line
[/li][li]Major Support and resistant
[/li][li]Fib Levels
[/li][li]CCI Divergence
[/li][li]Major whole number
[/li][li]Price action pattern(e.g Head and Shoulder, Double top, butterfly, gartley,etc)

I think I am pretty good at finding those signals in the chart, however, I am still not consistantly winning.

I know trading with confluence is the idea, but how many signal confluence in the list should I consider a high percentage trade?

Please pardon my english.


Two or more.

Are any of them more important than the others?

Short answer:

A high percentage trade is this: A forex set-up comes a long and you feel like your stupid if you don’t trade it since its a seemingly comprehensible easy to understand trade that makes complete and utter sense.

If you dont feel the bias and its not obvious to you and you dont see an obvious entry then dont trade. The best trades will be the one when a dummy can tell you that yes that is a resistance line, yes the bias is to the upside, yes that is a higher low.

I’m a price action trader too. You need to add one more very important thing to your list. Swing points. They will help you develop a bias.

If you have a swing point, then then a higher high then higher low. What does that tell you? The the bulls are strong enough to make a high and not make a new low. This gives the chart a bullish bias.

Risk management is a crucial component to success. Most traders are trying to find a near 100% winning strategy … it doesn’t exist. Even if you find a strategy that is more than 80% in your favour (very unlikely), based on previous historic data … you need to apply a risk to reward that will lead to consistent profitability. So find a strategy where the probability of the event happening is higher than normal AND your risk to reward is at least 1:2 ie you risk £10 to make £20 …

I dont think any type of confluence is more important than any other type for any given system. Although for my system personally I weight certain factors more than others. Confluence is all about stacking the odds in your favor, what ever signals or things you are taking into consideration. This game is all about trying to do that, every trade, find as many possible factors that can stack the odds in your favor. Whatever they may be.

Most probably it happens that many trades are thinking the same way. This is what happen when despite the negative NFP reports Euro came down last Friday instead of going up :slight_smile:

Simplify…I think you are probably bombarding yourself with way too many factors to consider. You want to take only one of those factors and remove all the rest. Then backtest that setup using your money management rules.

For example, you could only test pin bars. Try it out on the 4 hour chart and only trade a pin bar when it hits a previous support/resistance level. See how that goes.

Then add only one other factor to see if it improves your results. You could try only trading pin bars in a up or down trend or pin bars with CCI divergence…

You get the picture. Yes, it is a process and it takes time.

I use trend lines, horizontal s/r and Fib levels. The first two are the most important. I use candle patterns for entry signals, rather than additional confirmation/confluence.

Just for your information this might help you and others.

My price action definition: Price action is an attempt to find order in the chart’s movements. Furthermore it encompasses technical analysis; such as charting patterns, support and resistance, swing highs, swing lows, and candlestick formations. These methods are used to help you read the story and psychology of the chart so you can see the bias of the world wide view of a currency. Price action traders are focused on reading the charts price patterns instead of reading indicators. They think that the raw chart itself has all the answers they need to make a successful trade that is why price action traders don’t clutter there charts with lagging indicators.

I write 2 set-ups each day and they are anotated on my chart. Why 2? Well since i trade daily charts it takes around a month for my set-ups to form. I generally have 15 set-ups im waiting for.

Below is an example of a price action analysis that i recently did. If you can get good at writing these that will mean you are getting good at reading price action.

Analysis 05/04/2012 EURUSD

[I]In the long term the price has been consolidating since the high of 2008 at 1.60472 with no real indication of a strong prominent long term trend. In the weekly chart you can clearly see that there has been lower highs at 1.60472, 1.51465, and 1.49319. And there has been a lower low at 1.18797. This gives this consolidation a bearish bias but it’s not clearly evident. However I always say point out the obvious first since those are the points of most interest to traders around the world. And that is clearly evident.

In the medium term the fall from 1.49319 to 1.26192 isn’t over yet. For this to be over I would like to see a break above 1.34930 that should pave the way to at least 1.39406. This will also break the 200SMA. I expect this to be a strong resistance level and whipsaws are more likely since it’s going against the medium term trend. I will look for strong price action movement, momentum, and volume to pin point a valid breakout.

To the downside I am looking for a clean break below 1.3000 psychological support zone. This will extend the fall from 1.49319 down to 1.26192 with another medium term leg. A break at 1.26192 will extend the fall to test the major psychological support level at 1.18797. Currently there are 3 lower highs that give a bearish bias and form a descending triangle formation. This would be a very good set up to occur since it’s going with the medium and long term trends. Both 1.26192 and 1.18798are very evident on the chart so I am expecting strong action around those areas.[/I]

Haha the stuff you can get for free these days. Good luck!