This is a simple concept and one rooted firmly in trader psychology. It is also vitally important that you use this concept when setting up your trades, finding support and resistance, significant highs and lows, and last but definitely not least, getting a correct and consistent reading of the Wave clock angle on each time frame. Let’s discuss the importance of how you determine what you look at on your chart. Now this is the first time we’re actually discussing charting. Before now it’s been mainly trends and relationships, but here we are going to start getting very detailed about chart set-up because, after all, this is how you are going to interpret price action and understand the market’s movement.
One of the reasons you and I have spent so much time discussing concepts is because without this foundation there will come a time that you may abandon these methods because you quite simply don’t understand why you were doing it this way in the first place. I think the only way I can prepare you for the rigors of the market is to teach you the why and the how. All instruction without concept is simply going through the motions. I need you to understand why you are doing your analysis in a particular way so that when things get tough you can stand firm knowing that there is a reason for the approach, and moreover you will have more confidence. Most traders simply adopt a methodology because they learned it somewhere and likely from a source they had some trust in. But it’s not enough for you to have trust in what I am teaching or that I know what I am doing. If you cannot do this on your own, what’s the point? You need to have trust in the instruction as much as the instructor.
Market memory is related in many ways to my not using multiple time frame confirmation. Most traders rely upon looking at many time frames so that they can identify key support and resistance levels. If I were to ask you right now to look at a chart, any time frame you wish, how would you determine how much data you would include in the chart? For most traders, this is completely random or determined by what is comfortable to look at, which again is completely random. The problem with this is that without an understanding of how much price action to view on a specific time frame, you are likely to miss relevant levels and move and totally misread the market’s current cycle.
So you might ask, What’s the problem with looking at multiple time frames? Well, first of all you should know by now that each time frame could and probably is moving at a different market cycle. Second, what is support on the 30 minute chart may not even register as support on a 180 or 240 minute chart. Third, and this is the main reason, it opens up a Pandora’s Box of allowing you to begin looking for reasons to stay in a losing trade. If a 30 minute chart moves against you, it’s just too easy to jump to the 60 or the 240 or even the daily time frame to justify your position. I’ve seen it far too often. If you set-up a chart on the 60 minute time frame, you manage it from the 60 minute time frame. The only way you can do that is to make sure you are looking at and making your analysis from a complete market memory.
Each time frame has a specific market memory. The reason is that short-term time literally have short term memories, while longer time frames, like the 240 minute or the daily (also known as the end-of-day chart), require more data to make a decision because monthly and yearly high and lows matter. This is partly due to the number of candles you get per day on different time frames. We already discussed the brick-by-brick approach to time frames so you already understand the number of candles we get per day. To make a decision on a longer-term time frame, I am simply going to need more calendar days to generate a sufficient number of candles on the chart in order to see significant highs, lows, rallies, sell-offs, support, and resistance. But what is sufficient?
I began asking myself the same question years ago and started seeing some obvious clues in the way specific time frames respected certain price levels, depending upon how long ago the level was established. I was mainly interested in how far back I could go and whether or not traders reacted to older highs or lows. I began to see that each time frame had a general “memory,” which is basically a limit to how far back support and resistance would be respected. The easiest to figure out was the daily.
Traders are very aware of 52-week highs and lows, and this not only allowed me to determine that the market memory for a daily chart was one year, it also made it very clear that these 52-week highs and lows were psychological levels. So for a daily chart, you need one year of price action on your chart. It is also in this view, the complete market memory, that you will take your clock angle reading of the Wave.
Reading the Wave can be subjective if you do not look at the clock angle within a specific amount of data. The X axis (horizontal) and the Y axis (vertical) are affected by your charting platform. Most charting platforms will try to automatically squeeze in the closest recent high and low from the current price. This “auto scaling” means that you will not have complete control of how much data is on your chart, but we’re not looking for nor do we need that much accuracy. In fact, market memory is really designed to be more of a guideline to keep a trader from putting “too much” or “too little” price action on a chart.
If you were to expand the horizontal or X axis of your chart you would also be flattening out the angle of the Wave. Squeeze in too much on the X axis and you could and will most likely artificially steepen the Wave. So, yes, market memory as applied to the clock angle of the Wave is very important.
For the 30 and 60 minute charts, the market memory is two weeks. This two-week view will represent the significant highs and lows as they pertain to the 30 and 60 minute chart. By the way, even though we haven’t yet discussed it, there are other very easily identified levels called “psychological levels” that are observed beyond that of what is included in the market memory, and we’ll talk about those shortly. And I know I mentioned this already, but if you cannot fit two weeks exactly into your chart view, you can simply err on the side of slightly more rather than slightly less.
Since I trade the 30 minute, 60, 180, 240, and daily charts, those are the market memory settings I will get into detail here. But you can apply this psychology to any time frame so I will also include a few other settings on some popular requests that I get. The 180 and 240 minute charts should include a look back of no less than one month. With these two time frames I have no problem with going out as far as 8 to 10 weeks although one month/four weeks will be absolutely fine and effective. Personally, due to the way my charts typically compress on my charting platform, I am usually looking at four to six weeks.
The most popular requests I get for alternate time frames are the 5 and 10 minute, 120 minute, and weekly. For the 5 and 10 minute time frames, work with a 3 to 5-day market memory. For the 120, use the same settings as the 180 and 240 minute charts. Finally, for the weekly, which actually I do refer to for big picture trades and significant longer-term highs and lows, it’s a five-year market memory.
So let’s review because I’ve thrown a lot at you here. The main reasons for using market memory is to make sure you are looking at the most relevant price action and reading the Wave for the most accurate clock angle reading. When it comes to Forex in Five trading, the chart set-up, making sure you are looking at price action in its proper perspective, will add up to quicker and more importantly, more accurate analysis.
One of the reasons you and I have spent so much time discussing concepts is because without this foundation there will come a time that you may abandon these methods because you quite simply don’t understand why you were doing it this way in the first place. I think the only way I can prepare you for the rigors of the market is to teach you the why and the how. All instruction without concept is simply going through the motions. I need you to understand why you are doing your analysis in a particular way so that when things get tough you can stand firm knowing that there is a reason for the approach, and moreover you will have more confidence. Most traders simply adopt a methodology because they learned it somewhere and likely from a source they had some trust in. But it’s not enough for you to have trust in what I am teaching or that I know what I am doing. If you cannot do this on your own, what’s the point? You need to have trust in the instruction as much as the instructor.
Market memory is related in many ways to my not using multiple time frame confirmation. Most traders rely upon looking at many time frames so that they can identify key support and resistance levels. If I were to ask you right now to look at a chart, any time frame you wish, how would you determine how much data you would include in the chart? For most traders, this is completely random or determined by what is comfortable to look at, which again is completely random. The problem with this is that without an understanding of how much price action to view on a specific time frame, you are likely to miss relevant levels and move and totally misread the market’s current cycle.
So you might ask, What’s the problem with looking at multiple time frames? Well, first of all you should know by now that each time frame could and probably is moving at a different market cycle. Second, what is support on the 30 minute chart may not even register as support on a 180 or 240 minute chart. Third, and this is the main reason, it opens up a Pandora’s Box of allowing you to begin looking for reasons to stay in a losing trade. If a 30 minute chart moves against you, it’s just too easy to jump to the 60 or the 240 or even the daily time frame to justify your position. I’ve seen it far too often. If you set-up a chart on the 60 minute time frame, you manage it from the 60 minute time frame. The only way you can do that is to make sure you are looking at and making your analysis from a complete market memory.
Each time frame has a specific market memory. The reason is that short-term time literally have short term memories, while longer time frames, like the 240 minute or the daily (also known as the end-of-day chart), require more data to make a decision because monthly and yearly high and lows matter. This is partly due to the number of candles you get per day on different time frames. We already discussed the brick-by-brick approach to time frames so you already understand the number of candles we get per day. To make a decision on a longer-term time frame, I am simply going to need more calendar days to generate a sufficient number of candles on the chart in order to see significant highs, lows, rallies, sell-offs, support, and resistance. But what is sufficient?
I began asking myself the same question years ago and started seeing some obvious clues in the way specific time frames respected certain price levels, depending upon how long ago the level was established. I was mainly interested in how far back I could go and whether or not traders reacted to older highs or lows. I began to see that each time frame had a general “memory,” which is basically a limit to how far back support and resistance would be respected. The easiest to figure out was the daily.
Traders are very aware of 52-week highs and lows, and this not only allowed me to determine that the market memory for a daily chart was one year, it also made it very clear that these 52-week highs and lows were psychological levels. So for a daily chart, you need one year of price action on your chart. It is also in this view, the complete market memory, that you will take your clock angle reading of the Wave.
Reading the Wave can be subjective if you do not look at the clock angle within a specific amount of data. The X axis (horizontal) and the Y axis (vertical) are affected by your charting platform. Most charting platforms will try to automatically squeeze in the closest recent high and low from the current price. This “auto scaling” means that you will not have complete control of how much data is on your chart, but we’re not looking for nor do we need that much accuracy. In fact, market memory is really designed to be more of a guideline to keep a trader from putting “too much” or “too little” price action on a chart.
If you were to expand the horizontal or X axis of your chart you would also be flattening out the angle of the Wave. Squeeze in too much on the X axis and you could and will most likely artificially steepen the Wave. So, yes, market memory as applied to the clock angle of the Wave is very important.
For the 30 and 60 minute charts, the market memory is two weeks. This two-week view will represent the significant highs and lows as they pertain to the 30 and 60 minute chart. By the way, even though we haven’t yet discussed it, there are other very easily identified levels called “psychological levels” that are observed beyond that of what is included in the market memory, and we’ll talk about those shortly. And I know I mentioned this already, but if you cannot fit two weeks exactly into your chart view, you can simply err on the side of slightly more rather than slightly less.
Since I trade the 30 minute, 60, 180, 240, and daily charts, those are the market memory settings I will get into detail here. But you can apply this psychology to any time frame so I will also include a few other settings on some popular requests that I get. The 180 and 240 minute charts should include a look back of no less than one month. With these two time frames I have no problem with going out as far as 8 to 10 weeks although one month/four weeks will be absolutely fine and effective. Personally, due to the way my charts typically compress on my charting platform, I am usually looking at four to six weeks.
The most popular requests I get for alternate time frames are the 5 and 10 minute, 120 minute, and weekly. For the 5 and 10 minute time frames, work with a 3 to 5-day market memory. For the 120, use the same settings as the 180 and 240 minute charts. Finally, for the weekly, which actually I do refer to for big picture trades and significant longer-term highs and lows, it’s a five-year market memory.
So let’s review because I’ve thrown a lot at you here. The main reasons for using market memory is to make sure you are looking at the most relevant price action and reading the Wave for the most accurate clock angle reading. When it comes to Forex in Five trading, the chart set-up, making sure you are looking at price action in its proper perspective, will add up to quicker and more importantly, more accurate analysis.
