Initially, the term confluence is utilized to portray a geographic point where at least two streams meet up to form a single waterway. Be that as it may, understanding a similar logic, it might likewise be utilized with regards to finance, to depict the confluence of various investment strategies or trading signals.
With regards to long-term investment, confluence can be accomplished when an investor, advisor, or portfolio manager makes a portfolio in light of different strategies, typically investing in numerous asset classes. Generally speaking, this would lead to what we call portfolio diversification. Note that confluence connects with the combined utilization of various strategies, while diversification basically alludes to a portfolio that has distinct types of assets.
With respect to trading and technical analysis (TA), confluence could be portrayed as the development of a trading plan or strategy that considers different trading methods or TA indicators. Moreover, the term may likewise be utilized to depict the combined utilization of numerous trading signals, as a method for affirming the legitimacy of an expected buy or sell signal.
For example, envision that a trader spotted a potential reversal price zone in light of resistance and support levels. Yet, before taking the trade (i.e., opening a position), the trader could likewise check the position of moving midpoints to check whether any of them recommends a similar reversal zone. Other than that, they could likewise utilize the Ichimoku Cloud method to try and affirm even more the legitimacy of their analysis.
So we might say that a market trend or price reversal level might be confirmed using numerous wellsprings of data and trading signals. This is the thing we call a technical analysis confluence. As a result, a trader would have more motivations to one or the other open or close a position or to just trust that a better moment will make a move.
- Confluence happens when numerous thoughts or strategies are utilized together to form a single, reasonable thought or strategy.
- In investment guidance, confluence depends on building a layered strategy drawing from several types of analysis or theory that can accomplish investors' objectives inside their risk profile.
- In technical analysis, confluence comes about because of utilizing several indicators or signals to think of entry and exit points or spot reversals in a trend.