What's the significance here?
In technical analysis, confirmation alludes to the utilization of an additional indicator or indicators to validate a trend suggested by one indicator. Since technical indicators are not perfect indicators of future price developments, a trader frequently has a good sense of reassurance choosing to follow up on a signal in the event that more than one indicator is conveying a similar message. On the off chance that various indicators convey conflicting messages, this is known as divergence.
In securities trading, a confirmation may likewise allude to a fill, giving the subtleties of an executed trade.
Figuring out Confirmation
Confirmation can likewise allude to a broker's written affirmation that they have completed a trade. These can be in electronic or paper form, and record information like the date, price, commission, fees, and settlement terms of the trade. Brokers regularly send a confirmation in no less than multi week of the trade's completion.
Technical indicators fall into four broad categories: trend, momentum, volatility, and volume. While seeking confirmation for a trade signal given by one indicator, it is generally best to focus on an indicator from an alternate category. In any case, something very similar or comparable data sources are counted on various occasions, giving the illusion of confirmation when as a matter of fact minimal new information has been considered.
Confirmation is best met assuming at least one indicators from numerous categories are available:
- Trend indicators incorporate moving averages, moving average convergence divergence (MACD), and the parabolic SAR.
- Momentum indicators incorporate the stochastic oscillator, the commodity channel index (CCI), and the relative strength index (RSI).
- Volatility indicators incorporate Bollinger Bands, standard deviation, and average true range (ATR).
- Volume indicators incorporate the Chaikin Oscillator (additionally used to measure momentum), on-balance volume (OBV), and the volume rate of change.
Confirmation Example Using Indicators
Assume a trader sees a golden cross, which happens when the 50-day moving average crosses over the 200-day moving average. This is a signal to buy the stock, in light of a trend indicator (the moving averages). Since this signal alone doesn't guarantee higher prices, the trader could look for confirmation from an alternate type of indicator.
In this case, a high trading volume would support the buy signal, while lower volumes could make the trader reconsider taking a position in the stock. The OBV indicator would, subsequently, be an intelligent decision to confirm the trade: a rising OBV would confirm the golden cross' bullish signal, while a flat or falling OBV would propose that the price is approaching a top.
While seeking confirmation for a signal, investors ought to constantly be careful about confirmation bias, the psychological propensity to set greater store by the information that concurs with preconceived notions and to dispose of information that conflicts with those notions.
Of course, various wellsprings of information generally send conflicting messages somewhat, however traders ought to take care not to discount mixed signals.
At the point when an order is set in securities markets and it is executed, the broker or exchange will give a trade confirmation to the trader or investor. Otherwise called confirms or fills, trade confirmations report the trade's subtleties (see the sample picture below) and act as proof that the order has been executed on the whole or in part.
Trade confirmations are kept up with by a broker for customers, and these are gathered toward the finish of every year for tax purposes to register cost basis and capital gains or losses.
- Confirmation of trends can be vulnerable to confirmation bias.
- Two unique technical indicators, for example, volume or moving averages, assist with laying out the pervasiveness of a trend for traders.
- Confirmation can allude to either a broker's written affirmation of trade completion or probably the utilization of an additional technical indicator to validate a trend suggested by one indicator.