What is 'Confirmation'

Confirmation refers to the use of an additional indicator or indicators to substantiate a trend suggested by one indicator. Since technical indicators are not perfect predictors of future price movements, a trader often feels more secure deciding to act on a signal if more than one indicator is sending the same signal. If different indicators send conflicting signals, this is known as divergence.

BREAKING DOWN 'Confirmation'

Confirmation can also refer to a broker's written acknowledgment that they have completed a trade. These can be in electronic or paper form, and record information such as the date, price, commission, fees and settlement terms of the trade. Brokers typically send a confirmation within one week of the trade's completion.

Technical indicators fall into four broad categories: trend, momentum, volatility and volume. When seeking confirmation for a trade signal provided by one indicator, it is usually best to look to an indicator from a different category. Otherwise, the same or similar inputs are counted multiple times, giving the illusion of confirmation when in fact little new information has been taken into account. 

Trend indicators include moving averages, moving average convergence divergence (MACD) and the parabolic SAR. Momentum indicators include the stochastic oscillator, the commodity channel index (CCI) and the relative strength index (RSI). Volatility indicators include Bollinger Bands, standard deviation and average true range (ATR). Volume indicators include the Chaikin Oscillator (also used to measure momentum), on-balance volume (OBV) and the volume rate of change. (To learn more, see: How do Traders Identify Confirmation of Prices on a Chart?)

Confirmation Example

Suppose a trader notices a golden cross, which occurs when the 50-day moving average, crosses above the 200-day moving average. This is a signal to buy the stock, based on a trend indicator (the moving averages). Because this signal alone does not guarantee higher prices, the trader might seek confirmation from a different type of indicator. In this case, a high trading volume would reinforce the buy signal, while lower volumes might make the trader reconsider taking a position in the stock. The OBV indicator would, therefore, be a logical choice to confirm the trade: a rising OBV would confirm the golden cross' bullish signal, while a flat or falling OBV would suggest that the price is nearing a top. 

Image depicting an example of trade confirmation.

Confirmation Bias

When seeking confirmation for a signal, investors should always be wary of confirmation bias, the tendency to set greater store by information that agrees with preconceived notions and to discard information that clashes with those notions. Of course, different sources of information always send conflicting messages to some extent, but traders should take care not to discount mixed signals.

  1. Negative Confirmation

    Negative confirmation is a method of communication that requests ...
  2. Momentum Investing

    An investment strategy that aims to capitalize on the continuance ...
  3. Volume

    The number of shares or contracts traded in a security or an ...
  4. Divergence

    When the price of an asset and an indicator, index or other related ...
  5. Positive Confirmation

    An auditing inquiry that requires the customer to respond to ...
  6. Klinger Oscillator

    A technical indicator developed by Stephen Klinger that is used ...
Related Articles
  1. Trading

    The Four Most Common Indicators in Trend Trading

    Learn about the top indicators and tools trend traders use to establish when trends exist and find entry and exit points.
  2. Trading

    Using Technical Indicators To Develop Trading Strategies

    Unfortunately, there is no perfect investment strategy that will guarantee success, but you can find the indicators and strategies that will work best for your position.
  3. Trading

    Essential Strategies For Trading Volume

    Looking to trade using volume? Have a look at these essential tips.
  4. Trading

    Tackling Technicals For Beginners

    Choosing the right indicators can be a daunting task for novice traders. It’s a much easier process when they focus their effects into five categories.
  5. Trading

    Introduction To The Parabolic SAR

    Take a closer look at this indicator, which during a trending period, is a very useful and accurate tool.
  1. What are the best technical indicators to complement On-Balance Volume (OBV)?

    Discover why it is important to confirm the price trend signals generated from the on-balance volume indicator and which ... Read Answer >>
  2. Why is On-Balance Volume (OBV) important for traders and analysts?

    Discover reasons why the on-balance volume momentum indicator has become one of the most widely used and trusted tools of ... Read Answer >>
  3. What are the best technical indicators to complement the Volatility Ratio?

    Learn why using the volume indicator with the volatility indicator helps investors identify breakouts from established trading ... Read Answer >>
  4. What are the best technical indicators to complement the Force Index?

    Find out which technical tools pair best with the Force Index to generate and confirm trading signals, such as lagging indicators ... Read Answer >>
  5. What are the best technical indicators that complement the Relative Strength Index ...

    Learn some of the best additional technical indicators that can be used along with the relative strength index to anticipate ... Read Answer >>
  6. How do I use the Ease Of Movement Indicator to create a forex trading strategy?

    Discover how forex traders can apply the ease of movement indicator with currency pairs to and highlight how sensitive price ... Read Answer >>
Hot Definitions
  1. Standard Deviation

    A measure of the dispersion of a set of data from its mean, calculated as the square root of the variance. The more spread ...
  2. Entrepreneur

    An Entrepreneur is an individual who founds and runs a small business and assumes all the risk and reward of the venture. ...
  3. Money Market

    The money market is a segment of the financial market in which financial instruments with high liquidity and very short maturities ...
  4. Perfect Competition

    Pure or perfect competition is a theoretical market structure in which a number of criteria such as perfect information and ...
  5. Compound Interest

    Compound Interest is interest calculated on the initial principal and also on the accumulated interest of previous periods ...
  6. Income Statement

    A financial statement that measures a company's financial performance over a specific accounting period. Financial performance ...
Trading Center