4 Types of Trading Confirmations
"Wait for this confirmation!"
"Look for this confirmation!"
When I first began my trading journey, these are phrases that I kept seeing get thrown around and had no clue what it meant! What am I supposed to be looking for? What do these confirmations exactly mean? It quickly began to get frustrating and confusing...
Then eventually, things started to click one piece after another. Confirmations are a fundamental part of your trading and must be fully understood if you want to be successful in this game.
So, what is a confirmation? Well, it depends on many different scenarios, but in this post I will talk about 4 of the most common forms of confirmations with examples!
1️⃣ Price Action
When analysing many different instruments whether that is forex currencies, crypto projects or even stocks. You will often see when searching for trading opportunities that there are various confirmations that price will give clues about on the chart that we can trade from.
Price action & candlestick patterns are one of the strongest form of confluences as far as confirmations in trading go. They can be accurate reflections of the current market sentiment and gives you clues of what price is trying to communicate with you. Making them very reliable when used in the right hands of course.
Different types of price action confirmations such as doji's, pin bars, double top/bottoms & engulfing candlesticks have been proven by history time & time again to be a reliable method of identifying and predicting future market movements and is a major part of my technical analysis.
But, is it a good habit to instantly place a trade as soon as we see one of these confirmations? Short answer, NO! I wish it could be that simple... Trading with only one price action confluence will soon bring inconsistencies into your results and will negatively impact your overall success rate.
Instead, we need multiple confluences layered on top of one another to give us the best chance of predicting where price will head next.
2️⃣ Indicators
Whether you're purely a price action trader or an indicator heavy trader. From simple moving averages to complex computer algorithms, indicators play a big role in the trading industry.
Being 100% objective and removing all psychological aspects through providing real numbers, figures and data. They can be extremely beneficial to certain traders when it comes to carrying out their technical analysis.
For many traders, the various signals from indicators are considered to be accurate and reliable information. However, all indicators share one negative thing in common and that is that they are all lagging.
Meaning the data provided is not a live representation since it uses previous price action to pull its data and is unable to account for what is happening in the market in the right here, right now.
Often resulting in traders missing out on the big power moves, getting into positions too late or executing trades with bad risk:reward setups. Not to mention the potential for many traders to rely on indicators too much and begin to lose their own edge in the market (imagine a double edged sword if you will).
3️⃣ Fundamentals
Which are figures deriving from news events such as in an economic calendar, news & tweets etc. Actual fundamental news can become your best confirmation tool. However, the main obstacle right here is the promptness, validity and reliability of the data that you get.
The information shouldn't be delayed and it must be objectively true. The search for such a source is by itself is a very time-consuming and labor-intensive business not even mentioning its potential costs.
And that is not all. Knowing how to make sense of that data, its proper perception, and understanding requires a solid economical and financial background and experience.
At the end of the day, becoming an expert in fundamental analysis, the trader can easily sort the trading zones and trade only the ones that are confirmed by a decent fundamental trigger.
4️⃣ Key Levels
Us retail traders unfortunately don't control the market. There is an average of $5 trillion flowing in and out of the foreign exchange market every single day!
And the majority of this trading volume comes from the big institutional players such as banks & hedge funds etc. Therefore, it's important to know where these big players are buying/selling & why...
When analysing you pairs, you'll often see that price will naturally be magnetised to specific key levels. For example, key whole round figures that end in 0's & 50's such as 1.5000 or 1.5500. These are called psychological levels which the institutional market participants like to trade around purely for ease of mind.
These levels on various pairs have stayed the same for decades and for many years in the future and is one important form of a key level. Trading these key levels will allow you to find great liquidity zones, rejection areas and break + retest setups.
"Look for this confirmation!"
When I first began my trading journey, these are phrases that I kept seeing get thrown around and had no clue what it meant! What am I supposed to be looking for? What do these confirmations exactly mean? It quickly began to get frustrating and confusing...
Then eventually, things started to click one piece after another. Confirmations are a fundamental part of your trading and must be fully understood if you want to be successful in this game.
So, what is a confirmation? Well, it depends on many different scenarios, but in this post I will talk about 4 of the most common forms of confirmations with examples!
1️⃣ Price Action
When analysing many different instruments whether that is forex currencies, crypto projects or even stocks. You will often see when searching for trading opportunities that there are various confirmations that price will give clues about on the chart that we can trade from.
Price action & candlestick patterns are one of the strongest form of confluences as far as confirmations in trading go. They can be accurate reflections of the current market sentiment and gives you clues of what price is trying to communicate with you. Making them very reliable when used in the right hands of course.
Different types of price action confirmations such as doji's, pin bars, double top/bottoms & engulfing candlesticks have been proven by history time & time again to be a reliable method of identifying and predicting future market movements and is a major part of my technical analysis.
But, is it a good habit to instantly place a trade as soon as we see one of these confirmations? Short answer, NO! I wish it could be that simple... Trading with only one price action confluence will soon bring inconsistencies into your results and will negatively impact your overall success rate.
Instead, we need multiple confluences layered on top of one another to give us the best chance of predicting where price will head next.
2️⃣ Indicators
Whether you're purely a price action trader or an indicator heavy trader. From simple moving averages to complex computer algorithms, indicators play a big role in the trading industry.
Being 100% objective and removing all psychological aspects through providing real numbers, figures and data. They can be extremely beneficial to certain traders when it comes to carrying out their technical analysis.
For many traders, the various signals from indicators are considered to be accurate and reliable information. However, all indicators share one negative thing in common and that is that they are all lagging.
Meaning the data provided is not a live representation since it uses previous price action to pull its data and is unable to account for what is happening in the market in the right here, right now.
Often resulting in traders missing out on the big power moves, getting into positions too late or executing trades with bad risk:reward setups. Not to mention the potential for many traders to rely on indicators too much and begin to lose their own edge in the market (imagine a double edged sword if you will).
3️⃣ Fundamentals
Which are figures deriving from news events such as in an economic calendar, news & tweets etc. Actual fundamental news can become your best confirmation tool. However, the main obstacle right here is the promptness, validity and reliability of the data that you get.
The information shouldn't be delayed and it must be objectively true. The search for such a source is by itself is a very time-consuming and labor-intensive business not even mentioning its potential costs.
And that is not all. Knowing how to make sense of that data, its proper perception, and understanding requires a solid economical and financial background and experience.
At the end of the day, becoming an expert in fundamental analysis, the trader can easily sort the trading zones and trade only the ones that are confirmed by a decent fundamental trigger.
4️⃣ Key Levels
Us retail traders unfortunately don't control the market. There is an average of $5 trillion flowing in and out of the foreign exchange market every single day!
And the majority of this trading volume comes from the big institutional players such as banks & hedge funds etc. Therefore, it's important to know where these big players are buying/selling & why...
When analysing you pairs, you'll often see that price will naturally be magnetised to specific key levels. For example, key whole round figures that end in 0's & 50's such as 1.5000 or 1.5500. These are called psychological levels which the institutional market participants like to trade around purely for ease of mind.
These levels on various pairs have stayed the same for decades and for many years in the future and is one important form of a key level. Trading these key levels will allow you to find great liquidity zones, rejection areas and break + retest setups.
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