Trading using Murray Maths and Price Action

looking at price bars would make it even more interesting....u seem to be looking at the price plot...interesting way to look at the price...

I just applied the Murray Math indicator to the EUR/USD 5min chart, the price action followed the MM Lines very well. Whats the best time frame to apply MM indicator to? I see all examples posted so far have been on 1hr charts.

Time for some MM demo trading I think!!

The concept of stop loss and money management cannot be stressed enough. It is very easy to makemoney in the forex market. How much you make and in what time depends on how good you are. Let meexplain how easy it can be. Any sane person can find the long term trend in a currency. Just open the daily chart and find in which way the chart is moving. If it moves up from left to right, then the trend is up. If it moves down from left to right, the trend is down. Simple. You dont need to know rocket science to find this.

Next, you need to have enough money and you need to buy lots in the direction of the trend. Assume that you have $5000 in your mini-account and you buy 1 lot which would cost you, say $50. This means that you still have $4950 for handling the situation when the buy goes against you. Assuming that you buy EURUSD, the price has to move 4950 pips for you to burn up your account and be out of the trade. And what is the chance that the price would move 4950 pips against you if you had bought it in the direction of the trend? One in a million maybe. The price may go 300-400 pips against you but it will always come back if you had bought the pair in the direction of the trend. So making money in forex is as simple as picking the direction of the trend and having enough money to sustain your losses.

As said before, how much money you make and how soon the price, after it moves against you, comes back depends on what juncture you picked up your lot. It may come back in a few hours or days or months but it will surely come back. If you had picked it up at the right point and in the right direction, it will come back sooner. If you did not pick the right moment, it will still come back but it will be later. This is why you need to know the supports and resistances and the direction of the trend. If the trend is up and you go long at a support, even if the price breaks through the support and drops, it will surely come back. You need to wait patiently.

So always have enough money in your acccount and choose the time you get in, carefully. Lots of time is still left and the market is always going to be there. So dont hurry and dont blow up your account. There have been instances when many users open a $250 mini account and buy 1 lot in the wrong direction and blow up the account in a few days time. They keep doing this 4-5 times before they start realising this. Whereas, if they had spent time to accumulate that money (4 times $250 is $1000), they could have invested $1000 in the account and chosen the right moment to get in and thus made money. $1000 gives you a much better chance of survival than having $250 in your account.

So keep it simple. Choose the direction, choose the time and go for it and make money!!

Everyone needs to understand that losses are a part and parcel of the trading game. There is no way that anyone can avoid it. No one can be 100% successful always. So we need to take losses in our stride and try to minimize them as much as possible.

Trading is a game of percentages. If your win percentage is 50%, you are not doing great. But just increase that percentage to 70% and you would be sitting on a huge amount of profits. You need not be successful 90% or 95% of the time. Just being successful 70% of the time would make you a hugely rich man. We need to learn that and also accept that. But we need to ensure that we are atleast 70% successful consistently and this is where choosing your supports and resistances comes into the picture.

Does knowing support and resistances always make you successful and guarantee that all your trades end up in profits? No..Not at all. The knowledge of supports and resistances and other tools of the trade increases your chances and your percentage of your successful. Thatll. When you start off trading, you have 0% chance of success. Maybe you have some luck on your side and so your chances increases to 10-20%. That might make you win trades initially but in the long run, you would end up a loser. As you learn more and more the tricks of the trade and improve your knowledge and strategies, you slowly increase your chances of success and only when you increase it to above 50% do you start earning profits on a consistent basis. That is why there is no one in this whole world who keeps winning in his trades right from day one till the end of his trading career. No one can keep winning always. We need to remember that. Our main aim is to increase our chances of success as close to 70% or 80% and not 100% cos you never can be 100% successful always.

Now lets move on to stop losses. Stop losses are something which no one ever seems to get it right. Its tough for any trader to deal with the stop loss. Which is the ideal SL for my trades? Is it 100 pips or 300 pips or what? No one has endless money to keep hanging on to losing trades forever. If we did, we would not be trading. That is why it is good to have enough money, have good money management so that your SL is big enough to handle your losses. There is no fixed SL for any currency pair or for any trades as such. Your SL should vary depending on the pair and also depending on the situation and how and where you have taken your trade.

Yesterday, I had talked about averaging. I had said that averaging should be done only in the direction of the trend. While the trend is still intact, you can extend your SL to the maximum extent that is possible for you. Lets take GBPJPY as an example. It is in an uptrend right now. Lets say that it has met with some resistance and so you have taken a short. Having a SL of 300 pips for your short when it is against the trend is foolish. So if you want to trade against the trend, have your SL at a safe place where you know that it is not going to come back. For GBPJPY, it can be 75-100 pips maximum.
On the other hand, if you know that you have taken a trade with the trend, you could afford to have a much bigger SL and also add to your losing trades as well for the purposes of averaging. Your SL can even be 300 pips for GBPJPY if you are sure that the trend is still intact while having the same SL for a trade against the trend would be foolish. So the SL will always vary with the currency pair and also the situation under which the trade is taken. This is why it is very important to understand whether a move against your trade is due to a change in trend or due to a retracement. How do we identify that? We will discuss this sometime soon.

Thanks Kartick for good informations.As the trend & using proper stop loss are very vague in terms of practical point of views , they continue changing ,there may be some facts that the market may follow but can repaint to either direction & follow different routes as seen in elliot wave or anyother systems in understanding market moves.

trend in smaller tf can not be same as higher tfs , again using higher tf can go against lower tf of many many hundreds pips that may not be practical to suatain/tolerate & wait for the change in time .So timing also seems one most important fact as to when to trade ,what to trade,what % risk/reward ration involve.

By using murray maths can we select an entry needling minimum sl and an exit so that we can use this in our daily tradings ? and which tf we use ( I see ref. is minimum H1) ? Taking minimum risk having maximum profit chances.

sorry if ask in advance.
fontu

fontu...thanks for asking.....i use 1H usually.....i am basically a scalper, a trader who jumps in and out of trades as quickly as possible....i look for just 20-30 pips per trade...if i get more, thats fantastic....i trade about 4-5 currency pairs and using a 1H chart, i take about 20 trades a day which is good enough for me...

as for using stop losses when using murray maths, it is pretty straightforward...when price approaches a support, i take a long and the SL is below the support...vice versa for resistance.....very rarely, i increase my SL beyond the nearest support or resistrance when i am convinced that the trade will turn around....it is all about developing a feel for the market which comes with time...

the key in the above thing is to have patience....being patient enough to wait for price to reach a support or resistance and taking a trade depending on whether the S or R is broken or not.....many times, due to impatience and greed we see price running away and we are tempted to take a trade...key is to control this temptation....and to understand that there are millions of forthcoming opportunities in this market...

Most traders, sucessful and otherwise, have some trading system. How successful the trading system is would depend on the market dynamics. If you study the trading systems, we will find that many trading systems depend a lot on the indicators. For me, trading systems and studying of the markets and trading is all about pattern recognition. Take any indicator or any study about trading and you will see that in the background, it is only pattern recognition.

Take elliot waves for example. We try to find patterns in the chart and then base our entry and exits on how these patterns work out. We try and interpret these patterns as waves. Likewise, with fibos as well. We basically look out for highs and lows and try to find patterns and match them and use them for fibos. As these depend a lot on the patterns, which are in turn dependent on subjectivity, we find that many people interpret these waves and patterns in different ways and this is the reason why , though many people might follow elliot and fibos, their results from this vary a lot.

Trading systems which depend on indicators also depend on pattern matching. Just throw in 2 or 3 indicators into the chart and watch it. Say throw in 12 ema, 20 sma and 10 macd or whatever. All that you have to do is look for patterns. If 70% of the time, you find that when 12 ema crosses 20 ema, the price goes up, then you have a trading system. So all that you need to do is throw in some indicators, qweak the parameters and watch for patterns. If you are able to find a pattern by which price rises or falls 70% of the time when the pattern occurs, then you have a good trading system. Sometimes, the trading system may not be so straightforward. You need to consider news, whipsaws and all that.

So now when you have a trading system which works 70% of the time, are you settled for life? No...Why? This is due to the market dynamics. The market is never constant. It keeps changing its character. So what might work today may not work tomorrow. One of the major market dynamics is the correlation between pairs. Lot of people would tell you that EURUSD and USDCHF are highly correlated. When one rises, the other goes down. But when i started out trading, the correlation between these 2 pairs was huge. If one pair went up, you could bet your house that the other would go down and you could also pinpoint how much it would drop down by a great degree. For eg., if EURUSD went up by 10 pips, you could pinpoint and say that USDCHF would drop by , say 15 pips. But now, predicting the correlation between these 2 pairs is not so easy nor can it be done so accurately. Each pair has slowly started to have its own characteristics.

Likewise with the JPY crosses as well. A good example can be seen even now. For a long time, you could see that all JPY crosses moved together. If USDJPY is near its high, so would the other crosses. but it is no longer like that. This does not mean that they are not correlated. They are but the extent of correlation is becoming lesser.

Likewise, the volatility of the pairs also changes over time. Some pairs which had a daily range of 40-50 pips now have a range of 70-80 pips and the opposite is true as well.
This is just one example of changing market dynamics. So with the market changing so much over time, our trading systems also need to change and adapt to the changed market scenario. Thats why trading systems which used to work greatly a couple of years back do not work so well now. So be careful in choosing your trading system and once you have done that, keep following your systems closely to find out the time when their effectiveness becomes less and at those times, tweak it to make it more effective or move on to another trading system.

I can't open the MM indicator... i'm using Oanda platform..
Can anyone help to explain?

Thanks

I am pretty sure that indicator has to be applied to a metatrader chart

I have some materials to share with you

yes thats right...

in maybe a couple of hrs from now, i will post charts to explain some more and also try and see what analysis i can give for various pairs in the forthcoming week using murray maths...

Range trading is process of taking out a few pips of every small move in the price of a share or currency. This works best in a ranging directionless market where the price moves up and down without knowing where to go. It is in such a ranging market that the supports and resistances work very well. The idea behind range trading is to buy (or sell) near a support(or a resistance), wait for it to move up(or down) after hitting the support (or resistance) and thus get a few pips out of this move.

In a ranging market, there will be atleast 3-4 such signals per day per pair. Assuming that you make 5 pips out of every such move, u make 20 pips per pair per day which is pretty good. But what is most important in range trading and something which leads to many traders going broke is the stop loss. Before entering a trade, the trader has to decide whether he is going to range trade or swing trade. The mistake that most traders do is that they start off a trade with the intention of doing a range trade but when it breaks the support(or the resistance), they begin to treat it like a swing trade when actually there is no swing at all.

For thos who don know what swing trade is, it is just a bigger version of range trade where the traders look for 60-100 pip moves, use charts with greater time frames etc. These people lookout for fundamentals(more than what the range traders do), look out for much bigger and stronger supports and resistances and then take a trade hoping to get atleast 60-100 pips out of it...Swing traders get signals maybe once in 1 or 2 days per pair and so they need a greater amount of patience.

Coming back to the mistake made by range traders, they should remember that for range trading, the stop loss should be as minimum as required. When you are looking to make only 5-10 pips out of every signal, the SL should also be corresponding less (maximum 20 pips). Take the trade near the support or resistance and if the trade goes against you and breaks the support or resistance, just come out of it. Accept the fact that you have got it wrong and come out of it. Most range traders get into a trade planning to take 5-10 pips out of it and when they see the trade going against them, they wait and wait and keep seeing the position continue to go against them and after 100 pips loss, they realise their mistake and come out.

Just imagine this. In range trading, if you get 10 pips out of every signal and your SL is 100 pips, it means that you can afford to have only 1 loss out of every 11 trades that you make for you to make a profit. This means that you need to be successful more than 90% of the time which is next to impossible especially in range trading.
So take positions close to supports and resistances and when the trade goes against you and breaks the support and resistance, just accept the fact and come out as soon as possible.

In swing trading, you could afford to have much larger stop losses. As discussed in my article on this blog sometime back, the size of the SL would depend on the pair and also the direction of the trade. Trades in the direction of the trend can afford to have much larger SL than trades made against the trend.

Hi Blaiserboy,

When I try to open he .zip file it says the archive is corrupt.

Can you upload a file which can be opened?

Thanks for your help

thanks a lot!!! ... very useful informations.

I'll use metatrader to get the indicator.

it works fine in mt4 platform .

fontu

ok, lets try to predict the coming weeks movements in GJ using the daily chart attached below....as u can see, the resistance is around 140.63 and the supports are at 134.38 and and 131.25....

the advantage of doing scalping is that u really r not bothered abt what the pair is going to do...u just go with the flow at that point of time....

and the way i trade is that i keep switching between various timeframes to look for the nearest supports and resistances.....

for example, if price reaches 131.25, i take a long (cos of the strong daily support) and then i switch to 4H or 1H to look for the nearest resistance so that i can get out of the trade as soon as i see price stalling at these resistances.....so u need to keep switching between various timeframes to keep tab of all resistances and supports....

and here is some more info......

To learn this technique will take some applied study.. the benefits are great

I have attached some doc files which contain a lot of information re Murrey Math principles

attached is a 4H chart of EURUSD...just watch how price responded to each murray math level...all u had to do was to be patient, wait for price to reach each level and trade accordingly....if u did, u could make quite a bit of pips...

for eg....see the long candle which took price beyond 1.3428....usually, strong resistances are broken by such long candles...if strong resistances are broken by small candles, then it means that the move is weak and it is very likely that the price may go down below the resistance soon...but since this time it was a long candle, u know that its a good break and so now u know that 1.3428 and thereabouts was a very good support...u can see that it was not broken...so all u had to do was wait till price came near the support, take a long and u would be up more than 200 pips now....

now , at this time, u know that 1.3500-50 is a good support....

Yesterday, I had talked about averaging. I had said that averaging should be done only in the direction of the trend. While the trend is still intact, you can extend your SL to the maximum extent that is possible for you. Lets take GBPJPY as an example. It is in an uptrend right now. Lets say that it has met with some resistance and so you have taken a short. Having a SL of 300 pips for your short when it is against the trend is foolish. So if you want to trade against the trend, have your SL at a safe place where you know that it is not going to come back. For GBPJPY, it can be 75-100 pips maximum.

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I do not understand. If I short against the trend, a SL of 75 or 100 would be hit before a SL of 300. So what is a "safe place" for a SL in this case?