This article looks at the memory of price forex trading strategies.

One of the most distinguishing characteristics of the foreign exchange market is its volatility.  The constant movement in currency prices from high highs to low lows is what contributes to a traders profits and losses.  It is vital that you learn how to recognise these patterns and trends to effectively trade the forex market, as well as adapting your forex trading strategies accordingly.

One forex trading strategy that has been designed to benefit from these spikes is the memory of price strategy.  It is a setup that carefully scales into the trade in an anticipation of trend reversals.  This article will describe the memory of price forex strategy, as well as the different associated risks.

The memory of price forex trading strategies

The memory of price trading strategy is recommended for those traders who are not fond of using frequent trading stops and enjoy taking small, consistent trading profits.  However, one must note that although the strategy does not miss opportunities often, when a miss does occur the results can be catastrophic.  Therefore, it is recommended that you use stops as a loss could deplete your trading account.

The memory of price setup is based on the assumption that the resistance and support points of double tops and double bottoms influence the price action even after being broken.  These points act as magnetic fields attracting the movements once the majority of the stops are cleared.  The theory behind this is that it will take a large amount of purchase power to exceed the value of the prior range of a double top breakout, and vice versa if noting a double bottom breakdown.

For example, in the case of a double top breaking above a previous top requires buyers expend enough capital to overcome the topside resistance level.  However, they must also retain enough momentum to fuel a further price rally.  By this time the momentum will have expended to challenge the double time and one will see a similar movement in later peaks as in the first peak.

Identifying risk in the memory of price setup

When determining risk in this setup one should use a symmetrical approach.  Using the example above, one can measure an amount of retrace in the double top and then add that amount to the swing high creating a zone of resistance.  This is seen in the chart below.

Trading the memory of price in a short trade

To be an effective trader you must have, and adhere to, trading rules.  Below are certain rules outlined to trade the memory of price strategy correctly in a short trade.

• Identify an established uptrend with consistent higher lows
• Make sure the retrace is at least 38.2% of the original move, and is seen on a daily chart
• Enter the trade when the price rallies at a swing high
• Measure the amplitude and add it to the swing high this will be your ultimate stop
• Make 50% of your retrace segment your profit target
• If the trade moves against you, add the second half of the position at the 50% mark
• If the second half moves back to the original entry price, take profit on the second position.