What Is Confluence Anyway?

Fibonacci Confluence refers to a zone of price agreement between two different degrees of trend.

These confluence zones function as powerful areas of support or resistance. They occur each and every day at all degrees of trend, from tick charts to 60-minute charts. But the most rare and powerful set ups are those that occur on a daily chart. These zones are where big players make millions very quickly from gigantic trades that seemingly come out of nowhere.

Confluence zones also act as magnets that attract the market and give it a chance to demonstrate whether it is in harmony or not.

In a few previous posts, I showed you a how to trade these zones. In this post I will show you how to locate them and find them in the future.


First, here's a chart of the S&P cash index. You should note the February highs (far left), the March lows, the rounded April highs giving way to the April lows, then the final run to the May 2nd Bin Laden reversal. (Also note this is a 240 minute chart simply because it is easier to scale than a daily chart.)


Here the larger up trend is outlined.


Here is the smaller degree up trend within the larger up trend.


Here I've placed a Fibonacci grid over the entire up trend. The yellow lines represent standard 38% and 62% retracements.


Another Fib grid is placed over the smaller degree up trend.


When they are looked at together, you see that the 62% retracement of the smaller up trend coincides with the 38% retracement of the larger up trend.


That area (now marked in purple) represents confluence, or agreement, between the larger and smaller uptrend. Roughly 1325 on the S&P cash.

When the market is in agreement at two different degrees of trend, it is in harmony, and the trend is strong.

Last Friday, the S&P reached 1329.17, just 4 points from confluence. The market may be saying it is so strong that it couldn't slow down enough to hit the actual confluence zone, thus it may be very much in harmony.

Unfortunately it didn't say so with conviction, for it ended weak. A true successful test of a daily confluence zone should yield a 3-day rally of at least 60 S&P points. We've only gotten about 10 so far.

This confluence zone is now a line in the sand. Above it is bullish. Below it calls the bullish case into question. However, there is also a gap at 1312.62 that the S&P may want to fill before it tips its hand.

Tonight at this writing, the S&P futures are up 6.25 points. They will need to blow through 1350 this week for the bull case to stay intact. If they can't get through 1350 tomorrow, it may be a short. (***I won't be trading tomorrow as I'm getting the first two of my fillings removed. Wish me luck!)

Whatever happens, now you know how these targets are determined using basic Fibonacci. Markets always seek harmony. They don't always achieve it, and neither do we. But like the markets, we keep trying.