Confluence vs. Context in Trading

Confluence should not be confused with context. Confluence is when two or more technical reasons suggest something should happen in the same place—for example, Fibonacci support and a trend line in the same area. Context is the environment in which the stock is operating. For instance, there can be a confluence of supports in a downtrend, but the trend itself can render these supports almost meaningless.

Confluence can be part of context, so a pullback to an area with confluence can have significance if the trend is up. However, news can blow the price through confluence without hesitation, making it useless. Newer traders often place more importance on confluence than is practical or deserved. In trading, things only take on importance through the context in which they occur. The same goes for indicators. An indicator can give a long signal in a random area during a downtrend and be insignificant, or give the same long signal in a support area that needs to hold for the trend and be highly significant.

Context is everything. Support/resistance and indicator signals mean nothing if they occur in the wrong context.