When I first started working with Murrey Math, I
treated all the lines as simple pivots - support/resistance areas which could
be used to confirm buy/sell signals. I realised that some levels are often
repeated across different timeframes, which I thought simply made them stronger
pivots. Then over time I got to understand a little more about how the Murrey
works and here are a few tips from what I have learned so far. Firstly a bit
about the individual lines themselves:
Firstly there's the obvious - when the market is
over-extended in either direction (i.e at the overshoot or extreme overshoot
lines) there's a good chance of a move back the other way, especially if there
is confirmation from other indicators.
Then there's the one we've mentioned - the two
Murrey strategies:
Buy at 1/8 close at 4/8 or Buy at 0/8 close at 2/8
Sell at 7/8 close at 4/8 or Sell at 8/8 close at 6/8
The "Trading Range" lines might seem a bit
confusing at first, given that the market spends most of its time outside the
trading range, but there's more to it than that - these lines are actually very
important in determining the state or sentiment of the market. Basically, when
the market is between the lines, it is in an undecided state (i.e a trading
range). If it is above the 5/8 line then the market can be considered bullish,
likewise below 3/8 we are in a bearish market. Hence 5/8 is a great support level
for re-entering a long trend and 3/8 for short.
A break of these lines can be very important. For
example- If the market has been above 5/8 for a period of time but breaks
below, that is a sign of bullishness fading. A drop to 4/8 almost always follows,
and at that point 5/8 becomes significant resistance, because a break back
above it would represent a re-establishing of the bullish scenario which had
just previously failed.
If the market does indeed re-test 5/8 and fail, that
confirms that the bullish sentiment has pretty much gone and an attempt at a
move to 3/8 can be expected. If the market then breaks below 3/8, it has
definitively turned bearish - and 3/8 then becomes strong resistance as a break
back above would represent another change in sentiment, this time back to
indecision.
Note that sometimes the re-test doesn’t occur and
the market will break one trading range line and head straight for the other!
People often ask what timeframe to use Murrey on -
but I use it on almost all of them. I have 1m/5m/30m/1h/4h charts on-screen
with murrey lines. When you understand more about the market context murrey can
give you, it's useful to have them all up as it can give good clues about where
the market is likely to head.
A good example would be a trade I did a while ago
which used nothing but murrey lines to get me in. Now I'm doing this from
memory so it may not be totally accurate, but will still give a good idea of
what I'm on about (I hope!) :)
Cable had bounced strongly off the 0/8 line on the 4h
chart, a move targeting 2/8 (according to the strategy above), which was at
1.8250.
When it started approaching that level, I looked at
the 1h chart, which had broken above it's 3/8 line, suggesting a move to 4/8
was coming. 4/8 was also 1.8250.
When it got to there, I dropped down to the 5min
chart to "zoom in" on the action a bit more, and saw that cable had
broken above 3/8, retested and bounced off, targeting at least 5/8, which was also
1.8250 - it then broke this and went to 6/8 at 1.8265
By this time the upward move was running out of
steam - the 4h and 1h targets had been hit, and the 5min had made a sizeable
up-move and overshot the target by one level, suggesting it may need to pause
and retrace a little.
When the price hit that 6/8 at 1.8265 I
dropped down to the 1min chart to try to pick the exact entry for the reversal,
and I saw that the 7/8 (stall and reverse) line was at 1.8272. In the context
of what the other timeframes were saying, it seemed highly likely that if the
market hit this level it would bounce straight away.
The market went up to 1.8272 exactly then bounced
off, giving me a +50 trade!
So that's how I use murrey math - to give context on
what the market is doing and where it might go. I think it's important to have
all the timeframes up as once you get used to it they give great info, and
sometimes when they all say the same thing you don't need much else!
** As I write this I've just closed a cable short
(from 1.7792 - 0945am UK
time, closed 1.7777 at 0957), which was signalled well enough by divergences,
price channels, moving averages etc.
But a great confirmation for me was the fact that
when I entered the trade, the 5min chart had risen up to test the 3/8 line at
1.7792 - as I said earlier if market is below this it represents strong
resistance because it means a change in sentiment. Simultaneously, the 1min
chart was on +1/8 (extreme overshoot), which meant there was not much room
above and a bounce off was likely.
For the exit there were again good
divergence/boll/price channel/pivot signals and the confirmation for me was the
1min chart sitting just above the 5/8 line at 1.7769 - strong support because
it would have meant a change from bullish to undecided sentiment. I took the
exit there because in my view the market was short-term bullish, having risen
80 points in an hour, so that level was likely to hold as support.
** update again – I then reversed to long (at 1.7776 – 10am) with the target for the
trade at 1.8222, which has just been hit, because:
The 1min bullish scenario was intact after that 5/8
line held
If price broke above the 5min 3/8 the target would
be 4/8 at 1.8222
Right down at the bottom (1.7723) cable had bounced
off 1/8 a move which targets… 4/8!
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