In this article, We learn about "Convergence ".Let's Go!
Convergence occurs when multiple technical analysis methods give the same trading signals.
is typically the Technical Indicator, but can also be used in conjunction with the Chart Patterns, Price Action, and the Chart Overlay Tool.
Originally, the term confluence was used to describe the geographical point where two or more rivers come together to form a single body of water.
But following the same logic, it is now used in a trading context to describe the confluence of multiple trading signals.
What does "convergence" mean in trading?
In the chart below you can see a series of indicators creating a strong resistance area, including:
- Downtrend Line
- 200 SMA as dynamic resistance
- 61.8% Fibonacci Retracement Level
- RSI shows “oversold” reading
Other examples of
confluence might be:
- The RSI signal is oversold and the price is trading near the support level.
- A trend line converges at the bottom of the Bollinger Bands.
- The price is trading close to the 200 SMA, 50% Fibonacci retracement level, and major support.
Simply put, the concept of integration can be summarized as:
“An area in the market where two or more structures come together to form a high probability buy/sell zone.”
The fusion of trade signals can lead to greater accuracy and profitability.
What is "convergence transaction"?
“ Fusion Trading ” is when you combine multiple trading techniques or analyzes to increase the odds of a winning trade.
You use multiple trading indicators that give the same "reading" as a way of confirming the validity of a potential buy or sell signal.
Confluence is any situation where you see multiple trading signals lined up on a chart and telling you to take a trade.
For example, if you use a single technical analysis tool to predict price movements with 40% accuracy, and then use a second, related technical analysis tool to further filter your decisions, your odds of winning increase.
In other words, you use the concept of "confluence" to find trading setups using multiple technical analysis methods, all of which are independent forms of analysis signaling similar directional price movements.
For example, this happens when support and resistance levels closely align with Fibonacci retracement and extension levels.
Psychological levels, previous highs and lows, and dynamic support and resistance levels (such as moving averages or Bollinger Bands) can also serve as areas of interest.
When these levels coincide, they form stronger support or resistance levels that can be used as entry points or take profit levels.
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