Trading Confluence of Chart Patterns by Suri Duddella Chart patterns form purely as a result of knowledge based bias work in the markets. The learned behavior of traders to buy and sell above and below the key support and resistance levels or around critical price levels (highs, lows, pivots) creates price barriers in the form of trendlines or channels. These barriers become action/reaction lines and form geometric structures (Chart Patterns). Successful pattern trading requires the knowledge of chart pattern formation, its arrangement, and its market manipulation. The recognition of patterns and its body of knowledge of how to react and what to expect helps a trader’s success. What is Confluence? Technical Analysis is the study of behavioral patterns of various technical events. Confluence is when there is more than one technical analysis concept coming together at the same point in the market. Traders find a setup which has multiple price concepts from various non-correlated techniques or multiple price-patterns have found a high probability trading opportunity and there is a high chance of the trade working out successfully. Finding a confluence could eliminate noise from validating signal. When multiple ideas or events begin to unfold, traders look for confluence to have an edge before entering a trade. Confluence can be found in all forms of the markets -- Price Patterns, Moving Averages, Pivots, Support or Resistance levels, Trendlines and Fibonacci levels. All these tools were meeting a single location to form a unified event, it is considered a point of confluence. Confluence trading is simply combining more than one trading technique or chart pattern or analysis to increase trader odds of winning on a trade. Patterns Confluence with Price Levels First I present a basic example of how confluence concept works with Patterns and price levels. I am a believer of the confluence of various price levels forming support and resistance zones. Confluence zones from multiple pattern or trade setups act as key areas for price-action. Trading solely with these price levels may not be the best choice, but using these confluence zones with pattern setups may result in profitable trades. Here I show how I anticipate these confluence price zones and trade ABC chart pattern with the market context. The following chart shows S&P Emini (@ES) contract daily chart with ABC Bullish pattern and Floor & Fib. Zone Pivots indicators. @ES formed an ABC Bullish pattern from July to November of 2016 with a long entry at 2088 and a stop at 2068. The first target zone is 2198 to 2233 and the second target zone is 2335 to 2408. A Floor & Fib. Zones pivots (Monthly) indicator is also plotted on the same chart to find potential support and resistance zones. A confluence target zone for ABC Bullish pattern targets and pivots target zones is formed from 2365 to 2394. @ES reached its confluence target zone 2388 in March 2017.
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