Volume zones: the market's money memory
Price zones where a lot of trading happened are the market's ‘money memory’; when price returns to these zones, people holding positions there decide again and reactions are common.
In the chart above you see horizontal, semi-transparent coloured boxes behind price. These are volume zones: in the past, noticeably more trading happened in that price range. The box's colour tells who dominated there: green buyers, red sellers, orange a zone where both sides were heavy. The box extends from where it formed up to today.
Why does it matter? If a lot of trading happened in a price range, many people hold positions there. When price later returns to that zone, these people decide again: if they are in profit they add, if they are at a loss they sell to ‘get out even’. That is why volume zones work much like classic support and resistance; the difference is that they find the level not where price turned but where money concentrated.
A buyer zone (green) below price can be a cushion on the way down; a seller zone (red) above price can be an obstacle on the way up. The evidence card also knows how old a zone is: a very old zone may take up less space in the memory of today's investors.
Volume zones are a map, not a certainty: they show where price may slow down and where it may speed up.
The gaps between zones matter as much as the zones themselves. In a price range with little trading there are few positions to hold on to; when price enters it, it usually moves quickly and travels to the next volume zone. That is why, when setting a trade's target, looking at the first big volume zone in front of price is a realistic approach: the target is often up to there.
How to read it
- See which zone price is approaching: a box above it is a possible obstacle, a box below it a possible cushion.
- Read the box's colour: green means buyer concentration, red seller concentration, orange a two-sided battleground.
- Pay attention to the gaps between zones: in ranges with little volume price usually moves faster.
- Set the stop and target by the zones: put the stop not inside a volume zone but on its far side.
Trap
The most common mistake is treating every box as a certain reaction point. Volume zones can easily be crossed on strong news or a broad market move. The second mistake is giving very old zones as much weight as today's: the market's memory remembers fresh events better.
Tip
By tapping the ‘Money memory’ layers on the evidence card you can read which side each box belongs to; when there are several boxes, the nearest one is usually the most important.
Glossary
- Volume zone
- A price range that saw noticeably more trading in the past.
- Money memory
- Investors deciding again when price returns to levels where many positions were opened.
- Low-volume gap
- A range with little trading that price usually crosses quickly.
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Study money memory zones in an analysis →For information only, not investment advice.