FOREX INDICATOR: CONFLUENCES

Technical Confluences Indicator

EUR/USD in a slow motion down drift

As outlined on the daily perspective, most majors are showing similar price structures, ones which are characterised by lollygagging exchange rates, surrounded by ever converging technical levels such as moving averages, pivot points, volatility bands and recent highs and lows. Momentum indicators are surely reflecting the current consolidation seen in their charts.

Under this scenario, and without entirely dismissing my previous EURUSD analysis connoting a South move, I would prefer a clearer directional break out of the current congestion, before adopting fresh positioning. The EURUSD is presently hesitating between 1.1620 and 1.1420. Last week's and also last month's low represent the last line of support, before a downside continuation could become reality. On the upper side, a combination of Fibonacci levels and pivot resistances build the last line of defence for bulls.

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What are the Technical Confluences?

The TCI (Technical Confluences Indicator) is a tool to locate and point out those price levels where there is a congestion of indicators, moving averages, Fibonacci levels, Pivot Points, etc. Knowing where these congestion points are located is very useful for the trader, and can be used as a basis for different strategies.

HOW TO READ THE CHART?

Confluence of technical levels

This tool assigns a certain amount of “weight” to each indicator, and this “weight” can influence adjacents price levels. This means that one price level without any indicator or moving average but under the influence of two “strongly weighted” levels accumulate more resistance than their neighbours. In these cases, the tool signals resistance in apparently empty areas.

Color code

The tool detects and draws those price levels in which the confluences of indicators and key levels are recorded. Blank lines represent areas where the price can move without technical resistance. The levels with the highest assigned weight of resistance are drawn with the darker colour, this colour being degraded as the influence of the maximum levels decreases.

Tooltip

You can see which indicators are within each price level by placing the cursor on the level. The explanation uses a code that indicates:

Recent maximums and minimums
Round numbers. Round numbers have a psychological effect on traders, so we assign the finished price levels at 0, 00 and 000 some degree of resistance.
Short-term highs and lows
Pivot Points
Moving averages
Bollinger bands
Fibonacci retracements

HOW TO USE IT?

With the TCI tool, you can easily locate areas where the price can find a support zone or resistance zone and make trading decisions. If you are a short-term trader, you will find entry points for counter-trend strategies and hunt a few points each time. If you are a medium- and long-term trader, this tool will allow you to know in advance the price levels in which a medium / long-term trend can stop your travel and rest, where to undo positions or where to increase your position.

Bars’ length

The length of the bars of the TCI tool is determined by the weight assigned by the algorithm at each price level. The longest bar in a confluence indicates the level of the price segment where the highest level of confluence of the segment is located. In case of similar levels in the same price range, the maximum length will be assigned to that bar with more accumulated indicators.