[Confluence Trading] - Crypto Academy / S5W6- Homework Post for @reminiscence01.

Hello Professor @reminiscence01. I have read your post and now, I am doing the homework task given by you.

1. Explain Confluence trading. Explain how a trade setup can be enhanced using confluence trading.

In trading, Some traders use only one indicator or pattern to get trade signals but I think We should not depend on only one strategy. A wise trader will always use two or more indicators or strategies to get accurate signal or entry point for trading.

Sometime using only one indicator or strategy can also produce fakeout. We can avoid these fakeouts by confirming that signals using many more Indicators and strategies.

Here comes the motive of Confluence Trading. It is very useful for traders this trading means that We should use many more technical indicators or tools in trading to maximize our probability of getting accurate signal.

When we looking at the chart of any crypto asset for trading, We should never depend on any one technical tool or indicator, We should always use two or more than two technical indicators or strategies to confirm our signal and maximizing our chance of getting accurate signal.

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^{Confluence Trading}

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Look at the above image, I have used two technical strategies in that price chart which are RSI Indicator and MA Indicator.

I have marked a point on the chart where the RSI Indicator is in oversold region means price will start moving upwards from that point. I have used only one indicator at that time and I want to confirm it. So, I used MA Indicator on the price chart and from that point, The price is moving above the moving average means upward movement of price.

With the use of multiple technical strategies, I have confirmed the signal and hence, the price moved in upward direction as expected. That's why, Confluence Trading is best for confirmation of signals using multiple strategies.

2. Explain the importance of confluence trading in the crypto market?

Confluence Trading is very useful for traders if trader use two or more confluence in it's trade setup, then it can confirm the signal.

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Importance of Confluence Trading

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• If trader uses Confluence trading which means using two or more technical strategies to confirm signal, then the probability of getting accurate signal is maximum and minimize the probability of getting false signal.

• Confluence trading helps traders in confirming the signals by using some more technical strategies like If a trader has used one strategy and he got a signal, then he can confirm it by using many more strategies as only using one strategy can also give false signal.

• With the use of Confluence Trading, Trader will use many more technical strategies and this can help trader to get knowledge of many more strategies through which trader can experiment good trading.

• If trader uses Confluence Trading and confirms his signal, then he will get a confidence in his trade which will result in good positivity and trades in future.

• As we all know that one single strategy don't tell about every move of the price like for example, RSI Indicator tells about oversold and overbought region and ADX indicator tells about the strength of the trend. So, Trader can know the every condition of market with the use of multiple trading strategies.

Explain 2-level and 3-level confirmation confluence trading using any crypto chart.

Confluence trading is very useful and helpful for traders as it increases the probability of getting accurate signal with use of multiple technical strategies on the chart. Here, I will discuss about 2 types of confluence trading which are -

• 2-level confirmation Confluence Trading
• 3-level confirmation Confluence Trading

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2-level confirmation Confluence Trading

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If trader uses atleast 2 technical strategies or technical tools on price chart, then this trading will be known as 2-level confirmation Confluence Trading.

Through this type of confluence trading, Trader can predict the next move of the market by one technical strategy and then, trader can confirm it by using second technical strategy.

This works perfect for a trader as it minimize the fact of getting false signal by using two strategies to confirm the signal. Now, Let me explain you with a crypto asset chart.

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^{2-level confirmation Confluence Trading}

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Look at the above image, Here I have used 2 Strategies to identify the signal. I have used Money Flow Index (MFI) and MACD Indicator here.

I have marked a point on the price chart where the MFI Indicator is at 20 which means oversold region which is a sign of Bullish move.

As this is 2-level confluence trading, So, I have used another indicator which is MACD indicator and MACD indicator is crossing the line from below direction and moving towards above direction which is a strong sign of Bullish move.

Hence, I confirmed the signals with the help of 2 strategies and I confirmed that the price is going to make a Bullish move and that's exactly happened.

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3-level confirmation Confluence Trading

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When Trader uses atleast 3 technical strategies or tools in order to identify the next move of market or accurate signal, then this trading is known as 3-level confirmation Confluence Trading.

Through thie 3-level confluence trading, Trader can get the accurate signal as he/she will use atleast 3 technical strategies through which the signal can be confirmed by other strategies which will give trader confidence in his/her trading.

Traders can identify various things in the market of a particular crypto asset by the use of 3 technical strategies. They can first get a signal by using one strategy and then they can confirm it by using another two strategies.

This type of confluence trading minimises the fact of getting false signal and Trader can confirm it three times which increases the probability of getting accurate signal.

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^{3-level confirmation Confluence Trading}

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Look at the above image I have provided, I have used three technical strategies in the above price chart to confirm the signal. I have used MFI Indicator and MA Indicator and I have marked a Strong Support level in the price chart.

I have marked a point on the chart where the MFI Indicator value is 80 which means oversold region which is a sign of bearish move in of the price.

From that point, MA Indicator comes above the price which is a sign of bearish move. I have marked a strong support level on the price chart through which price has been rebounded many times but this time, price has broken the strong support level which is a sign of bearish move.

So, I have confirmed the signal using 3 technical strategies and all have the same confluence means 3-level confirmation Confluence Trading is very useful as price has moved in downward direction from that point.

4. Analyze and Open a demo trade on two crypto asset pairs using confluence trading. The following are expected in this question. a) Identify the trend. b) Explain the strategies/trading tools for your confluence. c) What are the different signals observed on the chart?

I will analyse Crypto asset price charts using Confluence trading here. I will also open a trade using Confluence Trading setup.

I will analyse BTCUSDT pair using Confluence Trading. I am going to use 3-level confirmation Confluence Trading as It is best for confirming signal more times and It will give confidence in your trade.

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^{BTCUSDT pair using Confluence Trading}

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(a) The current trend is Uptrend in 45min price chart of BTCUSDT as price has only moved in upward direction and with use of confluence trading, I will identify the next trend.

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(b) Look at the above image, I have taken price chart of BTCUSDT in which I have used 3 strategies which are MACD Indicator, CCI Indicator and MA Indicator.

Look at the MACD indicator, It is crossing the line from above and moving towards below direction which is a sign of bearish move. I have concluded it with the help of only one strategy. So, I will confirm it by using other strategies to confirm that all Strategies have the same confluence.

CCI Indicator is moving towards negative zone from postive zone which is a strong sign of bearish move. MA Indicator is now above the price. You can see it by zooming the image. So, Price is below moving average which is a sign of bearish move. So, I confirmed it with the help of 3 strategies and all gave the same confluence.

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(c) With the help of three strategies, I have concluded that the price is going to move in downward direction and I should open a short position here.

^{Short position of BTCUSDT}

As you can see in the image above, I have short BTCUSDT at price $48790 as concluded from the price chart using Confluence Trading and the price moved according to our expectation. I have marked a 5% profit in this short trade and booked profit by closing this position at price $48304.

Now, I will analyse SXPUSDT pair on the price chart using Confluence Trading.

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^{SXPUSDT pair using Confluence Trading}

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(a) The current trend is downtrend as you can see in the price chart of SXPUSDT that the price is only moving in downward direction. Now, I will identify the next trend using Confluence Trading.

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(b) Look at the above image, I have taken price chart of SXPUSDTpair in which I have used 3 strategies which are MACD Indicator, MA Indicator and Strong Resistance Level.

Look at the MACD Indicator, It is crossing the line from below direction and moving towards positive direction which is a sign of Bullish move. I will confirm it by using other strategies.

MA Indicator is moving below the price which means Price will move in Upward direction. And I have marked a strong Resistance Level and at the marked point, Price has broken that resistance level which is a strong sign of Bullish move.

So, I confirmed the signal with the help of 3 strategies and all have the same confluence.

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(c) Through Confluence Trading on price chart of SXPUSDT pair, I have concluded that the price is going to make a bullish move. So, I bought 6.5 amount of SXP on my Binance Exchange at price $1.558 total of $10.12.

^{Bought SXP at price $1.558}

After that, I wait for sometime and the price moved in upward direction as per our expectation. I have sold all my 6.5 SXP at price $1.57 and I received $10.20 means I booked a profit of 0.08$ which is 1% in Spot Trade using Confluence Trading.

^{Sold SXP at price $1.57}

I booked my profit at price $1.57 but the price continuously moving in upward direction which means our signal was perfect.

^{Price continuously moving in upward direction}

As you can see, I have taken position ay $1.558 and it's price is moving in Upward direction and here's Confluence Trading works perfect.

So, Confluence Trading gave perfect signal for both crypto asset pairs and I booked profit in both pairs means Confluence Trading is best and very useful for traders.

Conclusion

Confluence Trading is very useful for traders as traders can confirm the signal by using multiple strategies which maximizes the fact of getting accurate signal and It also gives confidence to trader in it's trade.

From above topics, I have explained about Confluence Trading, it's importance and two types of confluence trading and I have also analyzed two crypto asset pairs and Confluence Trading works perfectly here.

I would like to thanks Professor @reminiscence01 for this wonderful lecture as it has very useful topic which should be known by all traders.

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Note - I have taken all images from TradingView.

Cc:-
@reminiscence01