My simpleton's understanding of Murrey Math is what you can actually call "Mid-way Math". Like in a soccer game, the ball ALWAYS returns to the half-way line. I think that's the idea of dividing by 2 that is at the essence of Murrey Math.
Theoretically, you can pick ANY TIME frame, let's say you're going to trade using Murrey's EOD software, so your time frame is Days.
Then you pick a TRADING Frame (the 4, 8, 16, 32, 64, 128, 256) you see at the top of Murrey's software. Let's say you picked Frame 16.
Essentially what you're saying to yourself is that you're giving this particular trade 16 days(16 bars x 1 day) for the ball to run from one end of the playing field to the other.
As a trader, you should be one of the following 3 types:
DARING (I think Murrey calls them Gamblers, in the sense that they're willing to take a risk)
RATIONAL (calculating and cool-headed)
(not trying to be funny here.. If I remember correctly Murrey himself uses this word hehe)
Anyway, if the price is moving from the top of the screen to the bottom, i.e. from line 8/8 to line 0/8, then the Sellers are in control. The trader would be waiting to cover or enter long.. Here's what happens to our 3 traders:
Daring trader - jumps the gun and enters long at line 1/8 [even though he know the price can go down to 0/8]
Rational trader - cool-headedly waits to enter long at line 0/8
Chicken trader - too scared or too greedy.. waits for the price to hit -1/8 to enter long (it doesn't always go that far, so he ends up missing quite a few trades).
Now when the price is moving from 0/8 to 8/8, here's what happens:
Daring trader - sells and goes short at 7/8
Rational trader - waits for 8/8 to sell and go short
Chicken trader - out of greed waits for +1/8 to sell and go short (again, likely to miss a few trades)
That's the basic idea. Like in a soccer match, you'll find each team having a go at the other, with a full run from one goal to the other. They don't always score goals, but even so the ball still moves from one end of the pitch to the other.
What happens around lines OTHER than those mentioned above, is a whole new ball game
If I understand you correctly, from your previous post, to simplify, a trader either buys at 1/8, 0/8 or -1/8 depending on their risk tolerance. And they would wait for price to head back up to 7/8, 8/8 or +1/8 to get out of their position. What happens if price never gets back up to that level? This would be pretty good in a ranging market, but what about trending markets.
Getting back to the soccer analogy, and from my understanding of Murrey Math:
The levels repaint depending on how big the distance between pivot high and pivot low that is being used to calculate the lines is. For example, in the ES, trading on a 5 min chart, we have a distance of 2 points between lines, and maybe in the 15 min chart, the distance between lines is 4 points. Both using a trading frame of lets say 128 bars. If price continues consolidating, then eventually the 15 min chart MMLs are going to be exactly the same as the 5 min chart MMLs. So in a sense, the soccer court (iin the 15 min chart) is suddenly reduced by one half its total size. So now both teams are playing on one half of the original court.
How would a trader who bought at 0/8 line deal with this, would he sell at the new 8/8 line eventhough it is only half the distance away of the original 8/8 line, which would now be a a +8/8 line in the current frame.
I know this probably doesn't happen much on an EOD basis. I don't trade on an EOD basis, only intraday. Do you trade only based on EOD or intraday as well? If you trade intraday, how do you use MML to trade?
Right, so like in a soccer match, the price of stock/instrument will keep going from 0/8 to 8/8.. theoretically FOREVER.
When does that change?
Let's say Lmess's team, El Salvador, are playing swandro's team, England.
When do we say that El Salvador is too strong for England?
If El Salvador wouldn't let England past the half-way line, right?
If El Salvador cramp England's team in their own half, and wouldn't let them have an attempt at the Salvadorean goal, then something is wrong.
If every time England hold the ball, El Salvador snatches it away from them, and runs to the English goal and scores, then El Salvador is too strong.
Still, even when they concede a goal, England has a RIGHT to take the ball to the "centre" of the field.
In Midway Math, if the Buyers can't take the ball past the middle of the pitch, i.e. line 4/8, then obviously the sellers are too strong for them.
If the Buyers run out of time, the frame will shift, and 4/8 becomes 8/8.
It's like the Salvadoran team asked their goalkeeper to carry his goal and move it to the centre of the field.
Now we'll play a tighter game, from 0/8 to 4/8. You get the picture?
But even now that the price range has been cut by half, we break it down into eight segments and again we go into playing 0/8 to 8/8 and back.
Is this making sense?
The following user says Thank You to Zambi for this post:
Yes, it does make sense. Except in a match between England vs El Salvador, the score would probably be 20-0 England.
So once the trading frame is reduced to half its original size, a trader would still be looking to buy the same three levels and sell the same three levels, the only difference now is the distance between them?
In case the opposite happens, and the court gets extended, rather than reduced, or is shifted in the direction of negative MMLs? Where would each type of trader place a stop?
How would a trader get into a trade around the other lines, ranging from 2/8 to 6/8?
I'd think the answer would be buy 2/8 and sell 6/8 or maybe sell some at 4/8 on the way up or cover some at 4/8 on the way down.
I only used the EOD as an example.. in theory, you should be applying it on any time frame you trade. Buy at 0 and sell at 8.
What happens if we never get to 8?
You said it in your question.. suddenly, the pitch is reduced to half the original right?
So, what happens is this..
Here you are... carrying the ES long from 0/8. The price right now is at 4/8. And you're patiently waiting for 8/8 so you can sell.
Suddenly the frame re-draws.. and the line that was earlier 4/8 has now become 8/8.
Remember, you were originally waiting for an 8/8 line to sell at. Never mind what PRICE it was a bar ago. You're going to sell the line, not the price.
If I'm in a trade and I see the 8/8 line, SELL!
That works in the time frame you choose.
Of course, the bigger picture will be different. The 60 minute chart may be telling you we have another leg up.
But you're not trading 60 mins, you're trading 5 mins. So you apply the lines you see on the 5 mins frame.
If you were playing the 60 min frame, then all this re-drawing of frames on 1 and 5 and 15 shouldn't matter to you. You're paaaatiently waiting for the 8/8 line on 60 mins.
If the long awaited leg up doesn't materialize, what would happen? You'll see the 60 min frame re-draw. If you see an 8/8 line there, dump!
Lmess, before we go into playing around the other lines (2/8, 3/8, etc), let's just ask ourselves WHEN does the frame shift? (i.e. when does it re-draw)
In the examples above, and even in your own example, the frame shifted because we ran out of TIME. Let's say we're trading the 5 minutes time frame, and we're trading it on Murrey's Frame 16.
Basically, what this means is that we'll give the wretched ES around 80 minutes (16 bars x 5 mins each) to give us our daily dose of adrenaline. If by the time 80 mins are gone and the target is not fulfilled, you exit.
You exit because the frame re-drew. The frame re-drew because of TIME.
But a frame can also re-draw because of PRICE.
If we're moving up..
the price hits 8/8 and our rational trader goes short.
then it hits +1/8 and our greedy chicken trader goes short..
then it hits +2/8 yikes!
The moment the price moves the tiniest bit past +2/8, the frame will re-draw.
Now suddenly, the 8/8 becomes 4/8, and the shorts are gonna be killed because we have a whole new 8/8 target, right?
I don't think I heard Murrey say this, so don't quote me. It's what I tell myself and my friends: if you see the +2/8 line hit, and you don't short at or slightly above it, then you shouldn't be in this game.
If I don't short the +2/8, then I'm chickener than the Chicken trader who went short at +1/8.
In fact, if I'm a Rational trader, and I'd shorted at 8/8, I would take another lot at +2/8
(kids, don't try this at home, and don't try it with the euro on margin LOL)
Theoretically, all those who went short will get an exit. They may have to wait a bit for it, but remember that the price will almost always go back to the "centre" of the pitch.
The line we see at 4/8 now is where the Rational guy shorted. When the price goes down to it, he exits.
The chicken went short a line above, so when we hit 4/8 he's made a profit.
The daring trader is the one who's stuck in a bad trade. Nah.. he's a gambler, he probably reversed and went long LOL.
The opposite is true if we're moving downward.. if you go long at 0/8, and the price continues down and pierces -2/8, you add there and then wait for your entry point and exit there. You should be able to get a safe exit even without adding.
From what I understand, if price gets over-extended, the lines can shift. And now there is one line for every two lines before price got over-extended.so the 0/8 line remains the 0/8 line, the 2/8 line becomes the 1/8 line, the 4/8 line becomes the 2/8 line and so on. So now the distance between the lines is double what it used to be.
The case you are mentioning here is not that case. What you are saying is that the frame redraws because price went outside of the frame, above +2/8. All that is happening is that the line numbers are shifting, but the distance between them remains the same. So, if I understand you correctly, the 4/8 line, now becomes the 0/8 line, the 5/8 line becomes the 1/8 line and so on...
Which case happens more often? That the distance between lines is doubled or that the line numbers are shifted 4 lines up? (My guess is it might depend on the amount of bars and timeframe being used, but in your experience, which happens more often?)
So what you are saying is that the rational trader, who shorted at 8/8, once the new frame is drawn, has a short entry at 4/8 and should add another lot at what used to be +2/8 which is now 6/8. Then wait for price to bounce back to 4/8 and exit for an octave profit at 4/8 as his entry has now moved up to 5/8 since he scaled in at 6/8. He should also take into consideration that price might go up to 8/8 or even +1/8 before bouncing back down to 4/8. So that means as many as 3 or 4 octaves against him. Where would it be wise to place a stop?
Or I guess that alternately, he could take a loss of 2 octaves at +2/8 and then wait and go short again once price reaches the new 8/8 (originally +4/8). Also taking into consideration the fact that Murrey has some percentages that indicate the probability of a reversal taking place after a move of a certain amount of octaves has taken place, but that is probably a whole new ball game.