Using Confluence in Binary OptionsOne of the most useful concepts you can learn about trading is confluence. What is confluence? Any time that multiple indicators or signs are giving us matching signals about what the price of a financial instrument is going to do, we call that confluence. You’ll hear traders talk about confluence a lot when looking at price action or technical analysis setups.

What constitutes confluence for you depends wholly on your trading method. Some traders have only a few indicators on their charts, while others use none. Still others use a lot of different technical indicators. Looking for confluence using multiple indicators is helpful, but if you have an excessive number of indicators on your charts, this can result in conflicting signals which only add confusion and muddy up your trading method. Technical indicators aren’t the only signals which can provide you with confluence; if fundamental analysis tells you something is likely happening and a technical indicator tells you the same thing, that’s a type of confluence. Likewise, if price action signals a trade and a technical indicator agrees with it, that’s also confluence. Sometimes you get several different indicators matching and providing you with confluence, which is usually an excellent time to make a trade.

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An Example Of Confluence With Gold

Here’s an example. Maybe you trade binary options for gold, and your trading method involves price action on charts which include several moving averages in order to provide you with context for your trades. Your signal to buy gold is a particular price pattern. If you see that price pattern in a good context, the likelihood that gold’s price will rise is significantly higher. You see the price action signal for “buy,” and the formation is positioned right on top of two moving averages, which are now acting as support. The price action plus the two moving averages give you confluence. With three signals telling you “buy,” odds are pretty strongly in your favor if you follow through and call the price of gold.

It’s sometimes difficult for traders to understand that context is an important part of a trade setup. It isn’t just the setup itself which matters, but also where you find it and what’s going on with the bigger picture. Confluence usually happens when you find a good trading signal in a context where things are aligned. You’ll become familiar with how confluence works and what type of confluence you should look for if you do some testing using whatever form of analysis you are going to be relying on to place your real trades.