Memory-Of-Price Strategy
Categories: Financial Theory, Marketing
Oh the choices investors must make. The constant tug-of-war between being safe and missing out on those sweet, sweet returns. The memory-of-price strategy chooses safety as an investment strategy, and attempts to predict future prices based on recent prices.
To try to predict trend reversals, there are two patterns that can be calculated: a double top and a double bottom. A double top signals a bearish reversal, and a double bottom signals a bullish reversal. The memory-of-price strategy uses the double top and double bottom points as double-confirmation of a change in trend.
A double top means we’re at the top...and downward prices are expected after the plateau...time to sell. A double bottom means the reverse, with great rises on the horizon (hopefully), which means it’s time to buy.
Of course, the memory-of-price strategy assumes that these double top and double bottom points are reliable signals of soon-to-come prices changes, which is debatable. Still, since these points require two hits of info, they might be better predictors than some other trend-change indicators.