Using Confluence To Create A High Probability Trading Strategy

So as you may have guessed by now, this website is all about supply and demand trading.

But what if you have other strategies that are working for you?

Well… there’s no reason why you can’t use your favourite methods in confluence with those discussed on this website and in my course. You will most likely get less trading opportunities, but you will also end up with a higher probability trading system.

When multiple technical factors line up on a chart, there are many more traders getting involved and this will give your trade momentum to help get to it’s target.

In this article, we’ll explore some aspects of technical analysis that can be used in confluence with supply and demand methods.

Support, resistance, trendlines and time of day

On the 4 hour EURUSD chart below, we have a price pivot zone and a trendline. The red circles indicate where price bounced off the trendline and pivot zone.

Now let’s move on to a 15 min chart (below) and we can see a whole host of factors lining up to provide some very good trades. Notice our first red circle transposed from the 4hr chart.The trendline lines up exactly with a small 5 minute supply zone -this was good for a small intra-day trade of 20-30 pips with a 5 pip stoploss.

At first, it may not be apparent that much is happening at the second circle. This is where a closer examination is warranted.

The market has spiked above the prior swing high at 8:15am, just after the London open. It has taken out the stoplosses above that high, aswell as encouraging trendline breakout traders and resistance breakout traders to buy.

It hits the underside of the price pivot zone (on the 4hr chart), a few pips short of 15 min supply and promptly reverses. An easy trade would have been to go short as soon as the red line was breached to the downside – which in fact I did, and tweeted it live on Twitter!

So, not only do we have confluence of supply zones, the trendline and price pivot zone, but there were also confluence of time of day (the London open) and a stophunt. When you start putting all these factors together, you really have some great opportunities for high probability trades.

DAX

Here’s a further example on the DAX – I really do like trading this instrument as it behaves very well technically.

The red circle on 15 min chart below shows an area of good confluence for a high probability trade. Price had bounced off a demand zone in confluence with the reverse of a trendline and a price pivot area. Not only that, but there was a gap fill.

This setup occurred later in the New York session and gapped up the following day, hence it would have required an overnight hold. For overnight trades like these, I advise finding a broker who offer guaranteed stoplosses.

Fibonacci

I’m not a huge fan of Fibonacci, however I will often draw a fib to see if it lines up with my zones. And if you’re a Gartley trader, you can combine those patterns with supply and demand too!

In this GBPUSD example, demand lines up with the 78.6% retracement of the entire price swing. A trendline provides some additional confluence too.

Before looking at the chart below, see if you can guess what else is in confluence with the demand zone…

… correct if you guessed the answer is the AB=CD pattern!

Technical Indicators

Finally, let’s talk about technical indicators…

The market is driven by human beings reacting to the forces of supply and demand. The traders who solely use indicators and mechanically take every signal given by these indicators are destined to fail.

Using supply and demand methods, we have a greater edge over those traders and that is how we get paid.

However with that said, there is nothing wrong with using indicators in confluence with the supply and demand setups that I teach. You just have to ensure that you do not mechanically take every indicator setup, but instead use the indicators in the direction of the bias set by supply, demand and price action.

On the 15 min gold chart below, I have added a stochastics indicator with standard settings. As you can see, whenever the market reacted off a demand zone, the stochastics also gave an oversold signal. This could have been used as extra confluence to get into a trade.

Now compare that with mechanically taking every overbought and oversold signal on the chart. This would have been a losing proposition and also led to over-trading.

I hope this article has shown you that there are many ways to combine other aspects of technical analysis with supply and demand. I’ve only scratched the surface of this topic… but whatever your favourite style of trading, you should be able to combine it with the methods discussed on this website to produce a robust and profitable trading system.

Further Your Trading Education

Head on over to my course page and learn the full strategy, including advanced supply & demand concepts, market structure, how the smart money manipulates the market and how to apply these concepts to Forex, Stock Indices, Commodities and Crypto Currencies.