DEFINITION of 'Memory-Of-Price Strategy'

A trading strategy that assumes the support and resistance points of double tops and double bottoms exert an influence on future price action after they have been broken. The memory-of-price strategy says that after support or resistance has been broken and the majority of stops have been cleared, the price will be attracted back to these support and resistance levels.

This strategy is based on the theory that it will take a very large amount of buying or selling to exceed the prior range of the double top or double bottom, respectively.

BREAKING DOWN 'Memory-Of-Price Strategy'

This strategy appeals to traders who are frequently taken out by their stops, only to see the price reverse and ultimately move in their predicted direction. This strategy often banks small profits, but it is important to note that when the strategy misses, losses can be quite large. For this reason, it is imperative that the trader sticks to his or her stops when using this setup.

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