The market never forgets; indeed, it has a strong memory. This is evident from the support and resistance levels that are consistently remembered and respected by the market. Price movements often return to levels or areas where significant movements previously began. This is a recurring phenomenon in the historical movements of every currency pair, and understanding why this happens can help you anticipate market price movements.
Forex Trading Isn't Absolute: Probability in Trading
Forex trading isn't about certainty; it's about probability. The market will always remember every significant movement that has occurred. While not always absolute, this is a high probability. However, high probability can be relied upon as a strong assumption. Trading signals based on assumptions and price action formations often provide clear indications of price movement direction and are signals with high probability.
The 'Market Memory' Area
The market has an area known as the 'market memory', which is the level or area where significant price movements previously began. This area often forms after specific price action formations, such as pin bars, or sometimes without any specific price action formation. The market will test levels in this area every time the price approaches, and the market reaction can be quite strong. Traders can use this 'market memory' area as a reference to determine price movement direction and safe entry points.
The Market Never Forgets Support and Resistance Levels
The market never forgets support and resistance levels, especially those that have been tested several times. The stronger a support or resistance level, the more remembered by the market. When prices approach these levels, the market will react strongly or consolidate around the 'market memory' area before determining the next movement direction.
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To identify key levels remembered by the market, you need to understand significant support and resistance levels. Observe where the 'market memory' areas form, and be cautious whenever prices approach these levels. By understanding this concept, you can use key levels and 'market memory' areas as important references in your trading.
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