Another article, another trader has successfully passed the funded forex account. How did our newest portfolio manager get through? Technical analysis! No, no, do not click away! I know exactly what you are thinking, just another trader who made it through a funded forex account using technical analysis.
This article about technical analysis is different. Indeed, you have different technical analysis styles, methods and there is a lot about psychology you can delve into. But there is one aspect that is usually alluded to, but never explicitly mentioned: confluence.
Technical analysis confluence is one of the most powerful signals that a trader can have, especially when trading a funded forex account. As Jonas Wendling experienced, it helped him find his best trades and manage them effectively.
The best part is they tend to utilise the simplest technical analysis tools, notably trendlines, support/resistance, moving averages, Fibonacci, price action, among others.
(There is also a form of indirect confluence where different traders could see the same trends, but that is more along the lines of sentiment analysis.)
Can you get carried away with confluence?
Yes, you can.
If you decide you want to add lots of technical indicators in the hopes you will increase the chances of finding confluence. You will be in for a rude awakening.
This is because you will find the opposite effect will occur.
Different indicators are likely to provide different signals, and many traders will tell you that too many indicators have provided conflicting signals. The phenomenon that is commonly known as “analysis paralysis” will occur.
A general rule, to start with, is 2 indicators, 3 at the very most, and then go from there. The idea should be that price should go from there. Technically speaking, fundamental analysis could be another confluence as a tenant of technical analysis is that market expectations are priced in.
There are many theories of technical analysis we can go through, from Dow Theory, Gann Theory, Elliot waves and such. However, it will be too much for the scope of this article.
Without further ado, here is Jonas' interview!