Murrey Math

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We need a discussion on Murrey Math and implementing it into your trading.

I know many of you had not heard of Murrey Math Lines (MML) prior to reading my blog or this forum. I must also admit I only recently discovered it, so we will all learn together!

First, let me give a shout out to ns_karthik over on forexfactory:
http://www.forexfactory.com/showthread.php?t=159471

It was his posts that got me interested in learning more about MML, and as soon as I started playing with it I was immediately hooked.

From my blog you probably know I am not a fan of pivot points or fibonacci numbers, simply because I think there are too many of them and they end up covering your entire chart. You can find a reason to trade/not trade every few ticks it seems. I know that many traders are extremely successful using these methods, and that goes to my next point.

Successful trading is all about confidence. If you have confidence in pivot points and fib retracements, then you can make them work. If you have confidence in Murrey Math Lines, you can make them work. I believe this is mostly true of any system. It's when your confidence starts to falter, for instance due to holes in the method, that trouble arises.

So, let's get back on topic

and discuss Murrey Math Lines!

You can download the MML indicator for NinjaTrader in our File Sharing/Downloads section:
https://nexusfi.com/local_links.php?action=ratelink&catid=4&linkid=39

Attached to this post you'll also find a RAR archive with a PowerPoint presentation and a Word doc with a lot of very useful information for trading MML's.

I'll update this thread more soon...

Mike

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First, it's a good idea to memorize what each MML represents.

This graphic illustrates the following:
8/8: Hardest line to rise above (overbought)
7/8: Fast reverse line (weak)
6/8: Pivot reverse line
5/8: Upper trading range
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4/8: Major reversal line
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3/8: Lower trading range
2/8: Pivot reverse line
1/8: Fast reverse line (weak)
0/8: Hardest line to fall below (oversold)

Price is between 3/8 and 5/8 MML's about 43% of the time.

Here is another graphic illustrating the buy/sell options:

As you start observing the interaction between price and MML's, you'll start to notice some patterns. Take a look at these:

What this is showing us is that many times, if price is above the 5/8 line and falling, it will generally stop and consolidate around 5/8 first before heading lower. The same is true in the opposite direction: if price is below the 3/8 line and rising, it will generally stop and consolidate around the 3/8 line before heading higher.

On top of that, if price is between the 5/8 line and 6/8 line and heading higher, the tendency is to bounce off/reverse off the 6/8 line and retest 5/8 before heading higher. The same is true for shorts, if price is between the 3/8 line and 2/8 line and heading lower, it tends to bounce off the 2/8 line and retest 3/8 before heading lower.

Why does price do this? Remember, price is between the 3/8 and 5/8 line about 43% of the time. So before it jumps outside of its comfort zone, it needs to be sure (hence the retest).

More soon...

Mike

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Now let's take a quick look at what happens when price moves above 8/8 or below 0/8. This does not occur too often, but when it does it's important to know what to expect.

The above illustration tells us the following: If price moves above 8/8, 75% of the time the price will reverse off the +1/8 line and retest 8/8 before moving higher to +2/8. Similarly, if price falls below 0/8, 75% of the time the price will reverse off the -1/8 line and retest 0/8 before moving lower to -2/8.

Now, if price moves beyond the +1/8 or -1/8 lines, then 95% of the time it will reverse when it hits +2/8 or -2/8. Remember, the market was already in overbought (8/8) or oversold (0/8) mode, so once we push that to the extreme (+2/8 or -2/8) it is extremely unlikely (95% chance) to reverse.

Check out this illustration to see it demonstrated:

I hope this has been a helpful exercise in better understanding Murrey Math Lines!

Mike

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Wow. 75 % and 95% probabilities. You got my attention ...

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very interesting, but what if it is just optical illusion, the way our mind is trying to do grouping against the lines? What if we use not 1/8, but 1/10, will we be able to see consolidations, bouncing against certain lines? I see it useful because it forces mind to be predictive and be prepared for certain price actions, play scenarios during trading, etc. I know MM is used by E-signal to establish targets for the trades. I don't see why not. (-:

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record100

very interesting, but what if it is just optical illusion, the way our mind is trying to do grouping against the lines? What if we use not 1/8, but 1/10, will we be able to see consolidations, bouncing against certain lines? I see it useful because it forces mind to be predictive and be prepared for certain price actions, play scenarios during trading, etc. I know MM is used by E-signal to establish targets for the trades. I don't see why not. (-:

I will leave it to the math scholars to determine why certain mathematics principles work. But I think when applied to trading, you should go with what makes you confident and comfortable.

For me, I felt I was missing a piece of the puzzle before I started using MML's. Why did price reverse out of no where? etc. MML can answer that question for me when price is reversing right off a MML level.

So for some people, they can find the same comfort in pivots or fibs or counting waves, etc. For me, it is Murrey Math. I think everyone should find what they can relate to the most and use that.

Mike

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Here is a 60 minute ZN 09-09 chart showing 6/12 to 6/16.

I've colored my chart the same way as the above graphics are illustrated to try and make it easier.

There are a lot of lines on this chart, but that is because I widened the view to show you more of the MML's. In a normal view you would see less lines because price is so far away from those lines they don't need to be on the chart.

I don't normally have a 60 minute chart up. However, I was noticing that by stepping back and looking at MML from this perspective, there was a lot more correlation with price against the MML's than say there was on my 6765 volume chart, which is normally my biggest chart for trading the ZN.

I was happy with the correlation of price and MML at this time frame. The MML's did a good job at each pivot/reversal, with the exception of the last move which is not seen on this chart. The penetration of the 6/8 line (magenta) should have not reversed until the 8/8 line (blue). Instead, it reversed at 7/8 (yellow). Now, if you advanced the chart a few more hours (off the screen shot), you will see price did move up to 8/8 like it was supposed to.

Clearly, trading solely based on MML is not an option. More researched is needed.

Mike

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Here is a 60m ES 09-09 for 6/12 to 6/19.

The initial consolidation at 4/8 is consistent with the MML theory, then we fall down to 3/8 which is hard to break the first time on a down move (remember, price is between 3/8 and 5/8 43% of the time). Once it's clear we're not going to reverse off the 3/8 line, we head lower to the 2/8 line and bounce between 2/8 and 3/8. That's where we are today.

If I were to try and predict the price action for Monday, I would say that the 900-905 area should hold and we should bounce off of it and head up to the 925 area. If there is a big push up, we could see 935.

However, if it doesn't hold, we'll see a test of 875 before rebounding higher.

I do not like to predict the market, I am just doing this for entertainment sake to see how my understanding of MML will apply in predicting the future price of the ES.

Mike

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It looks like Murrey Math does not work with Range charts. I wonder if anyone else has this problem?

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Same here Eternum.

So I keep a one minute with MM on it to see if I can get used to the levels.

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