Memory-Of-Price Strategy is a trading strategy that is set up on the assumption of the support and resistance points of double tops and double bottoms exert an influence on future price action after they have been broken. The thesis behind this setup is that it takes an enormous amount of buying power to exceed the value of the prior range of the double top breakout and vice versa for the double-bottom breakdown. In the case of a double top, for example, breaking above a previous top requires that buyers not only expend capital and power to overcome the topside resistance, but also retain enough additional momentum to fuel the rally further. By that time, much of the momentum has been expended on the challenge to the double top, and it is unlikely that we will see a move of the same amplitude as the one that created the first top. 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.
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