Indicator Confluence

Different types nod together

Trend (moving averages), momentum (RSI, MACD) and volume (OBV, volume spikes) each look from a different angle. When they point the same way at the same time, that's confluence.

Repeating the same type is like asking the same person three times

RSI, KD and %R are all oscillators, and their curves nearly overlap. Stacking them doesn't add any information.

Too many conditions, too few signals

Each filter you add cuts the signals further. Stack them all and you might get one or two signals a year: easy to miss moves, and the statistics become meaningless (too small a sample size).

Key takeaways

• Confluence: different types of indicators (trend + momentum + volume) giving signals in the same direction at the same time.
• Avoid "more of the same": RSI, the stochastic and %R are all oscillators, so watching them together adds little information.
• More conditions aren't always better: the stricter the filter, the fewer the signals. You may miss moves, and the statistics become less reliable.

Try it yourself

You can do these exercises in this lesson's interactive simulation:

1. Tick only "RSI > 50": note the signal count and the 10-bar average return. Add "Close > EMA50": the signals get fewer. What about the average return?
2. Add "Volume > 20-bar avg." too: trend + momentum + volume. That's the kind of mixed combination in the example, like "moving average + RSI + OBV."
3. Tick all 6 conditions: how many signals are left? This is "too many filters make you miss moves."
4. Switch to "Same-type repeats": the RSI + KD + %R lines nearly overlap. How many fewer signals than RSI alone?

Quiz and explanations

1. Which of these combines "different types" of indicators?

Answer: Moving average + RSI + OBV.Trend + momentum + volume.

2. What's the side effect of adding too many filter conditions?

Answer: Fewer trading opportunities, and you may miss moves.The stricter the filter, the fewer the signals.

3. Price is above the EMA50 and RSI is above 50, but OBV keeps sliding. What's the most sensible view of this long signal?

Answer: Trend and momentum support it, but volume doesn't confirm, so the signal is weaker.Confluence is about whether different angles agree. With volume missing, reliability drops.

Terms in this lesson

• ATR (Average True Range): Average true range: the average size of each candle's move, regardless of direction.
• confluence (Confluence): Several different kinds of signals pointing the same way at once.
• MACD: An indicator that measures trend and momentum using the gap between EMA12 and EMA26 (the MACD line) and its signal line.
• MACD histogram (Histogram): The gap between the MACD line and its signal line; longer bars mean momentum is building, shorter bars mean it's fading.
• OBV (On-Balance Volume): A running total that adds volume on up days and subtracts it on down days, showing where money is flowing.
• oscillator (Oscillator): An indicator that swings within a fixed range (such as 0–100) to flag overbought and oversold conditions.
• RSI (Relative Strength Index): A 0–100 indicator comparing average gains with average losses over a period; above 70 is overbought, below 30 oversold.
• sample size (Sample Size): How many data points a statistic is based on, such as the number of trades in a backtest; the fewer the trades, the more luck drives the win rate and returns.
• stochastic oscillator (Stochastic): An indicator showing where the close sits within the high-low range of the last N days (KD / KDJ).
• Williams %R: An oscillator from 0 to −100; above −20 is overbought, below −80 oversold.