A technical confluence indicator is a forex trading analysis tool used to identify price levels where there is a congestion of technical indicators like moving averages, Fibonacci levels, and pivot points. In forex trading, having an idea of the different locations of these congestion points is the basic principle for developing a good trading strategy. Hence, this in-house tool (technical confluence indicator) is very crucial for all types of forex traders.
HOW TO READ THE DIFFERENT PARAMETERS OF A TECHNICAL CONFLUENCE INDICATOR
CONFLUENCE LEVELS OF TECHNICAL INDICATORS
In every price action analysis chart, a technical confluence indicator allocates a certain amount of weight to all technical indicators be it moving averages, Fibonacci levels, and pivot points. The weight placed on these indicators have the ability to influence neighboring price levels. This indicates that any price level devoid of a technical indicator (moving average) but under the influence of two weighted levels place by a technical confluence indicator accrue more resistance than other indicators. Therefore, a TCI identifies resistance in empty areas in a price action analysis chart.
COLOR CODES OF A TECHNICAL CONFLUENCE INDICATOR
After the identification of congested levels of indicators, technical confluence indicator draws out their positions using different colors. In a price action analysis chart, the blank lines portray areas and levels where the price of a security can move without a need for technical resistance. A dark color represents the area or level where the TCI assigned the highest weight of resistance.
THE BAR’S LENGTH IN A TECHNICAL CONFLUENCE INDICATOR
When viewing a TCI forex trading chart, every identified bar and its basic length is as a result of the weight of resistance allocated by a set of algorithm at each price level. Therefore, the lengthiest bar in the technical confluence indicator portrays the level where the highest level of price indicator confluence is located. However is there are bars with similar levels in the same price range, the bar with the maximum length will be the one with more congested indicators.
IMPORTANCE OF A TECHNICAL CONFLUENCE INDICATOR IN FOREX TRADING
- The tool is used in the identification of areas where the price of a financial asset, instrument or security find a support or resistance zone.
- It gives forex traders the ability to make better decisions while trading.
- The tool helps traders to develop functional and profitable trading strategies. For example, the TCI tool gives short-term traders the ability to identify entry points used for counter-trend strategies. In addition, the tool also gives medium and long-term forex traders a basic knowledge of when to stop trade positions and when to increase trade positions.
In conclusion, a technical confluence indicator is a very vital tool for forex traders. This tool not only identify clusters of technical indicators like Moving averages, pivot points, Bollinger bands, and Fibonacci retracements, but also provides medium for the identification of resistant price levels which in turn provides suitable knowledge used to make accurate trading decisions.