In the context of finance, the term confluence refers to the combination of multiple investment strategies or trading signals to form a comprehensive investment strategy that caters to an investor’s risk profile and financial goals.
Understanding the term
In the context of trading, confluence can be best described as the combination of multiple trading strategies into one comprehensive strategy. In long-term investing, investors, advisors, or portfolio managers can achieve confluence by creating a portfolio based on various strategies, typically investing in multiple asset classes. The term can also be used to describe the use of multiple trading signals together to validate potential buy or sell signals.
In technical analysis, confluence means looking at charts with multiple indicators and overlays. It uses different indicators which are combined to identify possible trading opportunities. For example, if a trader uses a single technical analysis tool that shows a 40% accuracy rate of predicting the price movement, they can use a second on-correlated technical analysis to filter the decision further. This can be termed a confluence.
Confluence refers to combining multiple ideas or strategies to form a single coherent idea or strategy. In technical analysis, confluence occurs when traders employ several signals or indicators to spot reversals in a trend or the entry or exit points.