Confluence in trading with Chartmap’s Joshua Benton

June 27th, 2024

In the recent NinjaTrader Ecosystem webinar, “Next-Generation Support and Resistance for Active Traders,” Chartmap Founder Joshua Benton discussed why intendent confluence matters when evaluating signal strength.

All traders look to find that edge in the markets they can use. In essence, Chartmap automates a timeless pattern recognition technique and puts it in algorithmic form—and that’s an exciting proposition for traders.

Note: This is not a red light, green light system. It won’t tell you when to trade or do the trading for you.

Full automation has its challenges with profitability over a long-time horizon, Benton said. Chartmap is an automatic analysis solution designed to increase your market awareness without incurring market fatigue, so you can focus on making good trading decisions.

Confluence in trading: independent variables

In the trading space, “confluence” can be a marketing buzzword, as this concept resonates with many traders.

If you have three signals all telling you to go long at the same time, it creates a higher expectancy than just one signal. But remember, not all signals are created equal. It’s important to consider each signal’s characteristics and the relationship of each one to the other.

To take advantage of the concept of confluence, traders need to combine independent signals, where their predictive natures are not derived from the same data. Otherwise, you can do more harm than good by creating false confidence. Market dynamics are complicated. Probabilities can be stacked by combining uncorrelated signals.

An example: Using two momentum oscillators to determine direction would be concerning, because they’re likely highly correlated and don’t provide a stacking of probabilities. If you put your confidence in a decision influenced by multiple identical signals, you’re really just making your decision off a single signal. Consider the level of independence your signals have when trying to leverage the concept of confluence.

Benton goes in depth on confluence in trading in the full presentation. Watch a sample clip here:

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