What is Confluence Price Action? – Trading Strategy

The strongest combination that a forex trader can use is Price Action Confluence. It may sound risky, but it’s truly accurate.

You might think this opinion is biased because it is based on price action trading. However, confluence factors are the most powerful tools traders can use, no matter how they trade.

1. PRICE ACTION CONFLUENCE

Price Action Confluence is one of the trading methods that isn’t really given much attention by many people. This is why many retail traders face difficulties. To accurately assess the power of confluence, we first need to define each term.

Price Action: The study of past price data on the market. And more importantly, how the current price reacts to it.

Confluence: The combination of two or more “factors.” In the case of forex traders, these are the factors that can influence future price action.

Let’s take a look at how these factors work.

We are studying how the current price reacts to past price action while simultaneously looking for factors that may influence future price action. This article will not focus too much on price action, as it will really focus on confluence factors.

Before diving deeper, remember that nothing is guaranteed in Forex. However, when used correctly, the combination of price action and confluence can help tilt the odds in your favor.

2. CREATING FAVORABLE ODDS

The best thing we can do as forex traders is arrange the odds in our favor. This is exactly what casinos do. They know they have the advantage because they set the odds in their favor. Sure, they lose some customers, but they know that over the course of a year, those odds will play out in terms of bringing them profit.

So, let’s start treating our trading account the way casino owners treat their business. That is, arranging the odds in your favor.

To illustrate this, let’s study an example of Price Action Confluence together. To simplify, each part of the confluence will be labeled as a confluence factor.

Quick Tip: Always draw your support and resistance levels first. It’s best to start with the weekly chart and then move to the daily chart. This will ensure you mark the clearest and most influential price levels.

3. HOW TO APPLY CONFLUENCE FACTORS TO FOREX TRADING

Let’s analyze what’s happening on the daily chart of GBP/CAD as if we’re analyzing price action for a potential trade.

Here’s what we want to look for:

• We already have important support and resistance levels drawn based on the resistance zone.
• At the close of the trading day, we notice a Pin Bar candlestick formed at the resistance level.
• The uptrend is clearly marked by Confluence Factor #2.
• The price seems to have enough room to move since there’s no resistance immediately above. This trade could give us at least 2R, potentially more.
• Finally, the moving averages are creating dynamic support that aligns with our key levels.

So, is this Pin Bar candle suitable for us to place a buy order? Absolutely! We’ve checked all the confluence factors. In other words, we’ve stacked the odds in our favor. Think of each Confluence Factor as an additional 15% or 20% added to the chances of the price moving in the desired direction. The more confluence factors in the price action setup, the better. But be cautious with this!

4. SUMMARY

As mentioned above, nothing is guaranteed in Forex. So, always stay diligent no matter how perfect a price action setup looks.

This is everything you need to know about Price Action Confluence. I hope you now have a better understanding of the power of this combination when used correctly. The best way to build confidence in any trading strategy is to immerse yourself in it. So, start observing, tracking price action setups with confluence, and analyze them for yourself.