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Crypto Terms:  Letter C
Jun 19, 2023 |
updated Apr 02, 2024

What is Confluence?

Confluence Meaning:
Confluence - a combination of technical indicators, trading signals, and investment methods that are incorporated to create a more trustworthy investment strategy.
2 minutes

Let's find out Confluence meaning, definition in crypto, what is Confluence, and all other detailed facts.

Primarily, the term "confluence" defines a place where two or more rivers join and create a single river. However, using the same rationale, it can also be used in the world of finance. Confluence defines the convergence of numerous trading signals and investment methods.

Considering long-term investments, when an investor builds a portfolio based on diverse methods, confluence might occur. Usually, investors do that when they want to invest in numerous assets. Typically, this results in portfolio diversification.

Though keep in mind that confluence and diversification differ. Confluence is about the utilization of many strategies in one portfolio. Diversification, on the other hand, is about a portfolio with various asset types.

Confluence in trading and technical analysis can be defined as the creation of a trading plan. Such a plan incorporates many trading strategies or technical analysis indicators. Additionally, confluence can refer to the use of various trading signals in tandem. This assists while checking the authenticity of a possible buy or sell signal.

Consider the case in which a trader identifies a possible reversal price zone based on resistance and support levels. However, before opening a position, the trader also examines the position of moving averages. This way the trader determines if any of them point to the same reversal zone. Aside from that, he/she also applies the Fibonacci Retracement approach. This helps to confirm the accuracy of the analysis even more. Overall, the trader can use as many trading signals and TA tools as he/she wants.

Thus, we can argue that the utilization of many sources of data and trading signals can validate a market trend or a price reversal level. As a result, a trader is more certain if the position should be opened or closed. However, the trader might also decide to simply wait for a better opportunity to invest.