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It's what happened today and explains why I've got enough time to write and apply the "Those who can't do, teach" theory LOL
I'm what you call the eternal bear, and I got killed today, I just don't go long, and since it's a day for longs, I'm sitting on the sidelines licking my wounds now..
I was trading the 5 min interval (16 frame).
I took a short at 1281.25 which was until then the 8/8 line. When trading intraday, you should always be mindful of the bigger frames, but we'll come to that later (hopefully, if I haven't bored your socks off by then).
Anyway, short at 8/8.
To confirm that we're going down, you need a 2-line movement. If they hit 6/8, that's a confirmation. You don't mind if they went back up to 7/8 or even 8/8. Since they moved down 2 lines, then the movement would most likely continue down, at least to 4/8.
If I remember him correctly, Murrey says if you take a short at 8/8 and the price stalls there for like 10 candles, you start to pray
I think that's because the 10 candles would give time to a bigger frame to catch up.
Anyway, if it stalls at 8/8, you start to pray and start thinking it's not going to be a winning trade. You go into "manage" mode depending on your style - take a small loss, take a tiny profit or even reverse.
If it DOES turn out to be a winning trade, but only goes down ONE line, again, I'd start thinking about exiting.
We went short at 8/8, but the Sellers can't drive the buyers more than one line. The Buyers held the 7/8 line, therefore the Buyers are too strong. Taking a one-line profit can be a good idea here.
However, if the Sellers manage to squeeze two lines out of the Buyers, down to 6/8, then it confirms we're going down to at least half way through the playing field. The Sellers would hit hard and the two line move would scare the Buyers, but it's okay for them (in fact this is what happens most of the time) to try to hit back and recover at least one line.
You'll find this happens most of the time.. some of the big guns would be long at 8/8. They take a punch from a bigger gun that pushes them down to 6/8. So they add more lots at 6/8 and buy the price up to 7/8. Now they're at breakeven, but they know the bigger gun is gonna resume selling, so they join the party. They sell at breakeven, then start shorting, driving the price even further than 6/8. That's when you're in a winning short trade.
So, in a nutshell.. if the shorts get at least two lines, you're safe. One line is NOT enough.
Back to my story. Short at 1281.25 (8/8 line). The 6/8 line was at 79.38, and 4/8 was 77.34 or something.
I exited with a profit of 2 lines at 79.25 and prepared to go short again at 81.25 (it's okay for them to go back to 8/8 after the first punch).
I shorted again at 81.50 in fact. So I was hoping for an even bigger profit.
Then as you describe, the frame re-drew without piercing a price level. 79.25 was 6/8 until then, but when the frame re-drew it became 7/8.
What happens if you're short 8/8 and they only give you one line? You exit. Keyword "You" because I didn't LOL
They dragged me up past 83.25 which was a +2/8 I think. I panicked and took a stop there.
But what do you know, after piercing the +2/8 they DID go back to 81.25. You gotta love Murrey.
Had I not taken the stop, I would've exited at breakeven, or maybe a couple of ticks profit. I think they got down to 80.50.
A better trader would have reversed and gone long at 81.25 (since now we have a new 8/8 to go after). But I didn't. But that's just me.
I hope this helps.
Can you help answer these questions from other members on NexusFi?
This is an important bit which I probably didn't address. The decision on taking stops and/or reversing depends on your trading style, and more importantly on what frame you're playing. In my personal experience, when trading the smaller time frames, they would give you an exit there and then. But it would be very quick and you have to take it.
As to reversing at +2/8, I personally wouldn't do it. Yes it would pay off in the end, but you go long there you'll almost ALWAYS see that trade go down on you as they head back to what was originally the 8/8 line. I don't remember Murrey's probability percentages, but from trading I can tell you that more than 75% of the time, if you go long at +2/8, you'll see that trade go against you at least one or two lines.
If you're cool and trust your MM lines, just enter the trade and then go get yourself a coffee or something so you don't have to watch.
Thanks for the replies. I'm not getting bored at all. I have a couple of comments/questions.
The first one is, when you say it was a "5 min interval (16 frame).", how many bars back, in total, was the indicator going to get the swing high/low? Was it just 16 or 128? In the indicators found for MT4 (where I first used MML), you have to set how many bars to include when looking for the swing high/low to calculate where to draw the lines and how far apart to draw them, that is why I ask, so we are on the same page when you say how many bars per frame.
As for what happened to you this morning. You mentioned:
From this, I deduct that each octave was 1 point, since you took a two octave profit of 2 points. Then when price went back up to 8/8 at 81.25, you shorted around that level since price had been taken down 2 octaves and you though that was just a retracement before price continued to fall. However, at that point, the frame re-drew and the distance between the lines doubled (price had extended a bit inside the frame) so what used to be the 6/8 line became the 7/8 line, and I'm guessing the 8/8 line remained the same and the +2/8 line became +1/8 line. So you covered your short at what was originally +2/8, which was now +1/8 and then price reverted and went back down to 8/8. Would that be correct?
On another subject, just to clarify, I did not mean reversing at +2/8. What I meant was, say in your case, where you took your second short at 8/8 and price went against you to +2/8, if instead of changing the distance between lines, they would have only shifted as in the first example you mentioned. So the 8/8 line becomes the 4/8 line and the +2/8 line becomes the 6/8 line (basically add 4 to each line)...etc, what I meant was that a trader would exit at original +2/8 (6/8 now) for a 2 octave loss, without reversing, and wait for price to get up to what would originally had been +4/8 (8/8 now) and short that line again.
That is not what happened in your case, as the distance between lines doubled, so what was 8/8, remained 8/8 and what was 6/8 became 7/8, 4/8 became 6/8, etc... the frame got wider, it did not shift. In the soccer game analogy, in your case, the soccer court doubled in size, what used to be the opponent's goal, is now half court. In the first case, it just shifted; so what used to be half court, now became the opponents goal, what used to be my goal became half court, and where the fans used to be sitting watching the game behind my original goal is now my goal. Hopefully, I am not being too confusing.
EDIT: One more thing, what do you use for intraday MMLs, do you use their RT software or an indicator, and if so, in which platform?
I haven't used the MetaTrader script, but the past couple of days I downloaded the Ninja Trader demo and the MM script for them. I couldn't get it to work, but I did see it had an option to set a "number of bars back". This is NOT what I'm talking about when I say Frame 16 or Frame 64.
I think if your MT script gives you that option, it's best to leave it at default unless you like to experiment.
I'm now trying out the TradeStation platform and the MM Indicator I picked up here. It does not have the option of setting a number of bars back, but it does have the option of choosing the frame "size". In the screen capture attached it's the top-most field.
I think an "official" solution would be to use Murrey's own Real Time software. On his website they used to have a 60 day trial for $60. But it uses eSignal as a data feed, and navigating the options on eSignal's website is daunting to say the least.
In Murrey's RT software, like his EOD software, you can choose the Frame. My understanding of it is like I said before. If you choose Frame 64, it's like you're giving the stock a window of 64 bars to do what it's supposed to do.
With the EOD software, we were told to use 16 for stocks and 32 for indices. But I only attended one class of Murrey's and there's probably a lot more to juggling frame sizes around that he would've taught if I had attended more classes.
With TradeStation, the default is 8, but I set it to 16 and so far it seems to be working fine.
The closest thing I came across to Murrey's own software is a little applet called XchartMM. It should be somewhere on Yahoo or Google groups, but it used to work with Qcharts and stopped functioning since eSignal bought Qcharts. If there are any programmers on futures.io (formerly BMT) maybe they can have a go at making it work with MetaTrader or NinjaTrader?
On your current MT script, try looking for an option that gives you the choice of a bunch of numbers that appear to be multiples of 4 (4, 8, 16, 32, 64, 128, 256). That's what you need to play with when I say Frame 16 or Frame so-and-so.
Alright, let's make sure we're using the terms to mean the same thing. To me, an "octave" is the whole set of 8 lines. So when we go up from 0/8 to 8/8, that's one full octave.
Each line in Murrey lingo is an eighth (1/8) but it's much simpler to just call it a "line" :P
When I went short each line was slightly less than a point, and two lines would make up 1.953 which is a Murrey number I think (take the number 100 and start dividing by 2 repeatedly, you'll get Murrey's numbers).
And going back to what happened this morning, to be honest I didn't even look at what +2/8 was or became.. I just saw the ES punching through +2/8 on 60 mins, 30 mins and the rest of them. The TradeStation plug-in takes a bit of time to re-draw the frame. I wasn't about to wait so I just hit "Flatten" hehe. You can tell from the EOD screenshot that the likelihood was higher that they'd kill the shorts today.
The S&P cash stopped at 1296 which is 3/8 on the EOD chart. The Dow also stalled at 12,187.5 or thereabout.
Umm.. yeah you did lose me LOL
But I think you're on the right track.. especially with the soccer analogy.
Effectively, when we punch through a +2/8, it's like we're waving goodbye to the lower half of the pitch (from 0 to 4).
If El Salvador were at the lower half of the pitch, and they repeatedly devastated England, they'll call their goalie to move his goal post to 4/8. The bottom part now is gone off the screen.
And since El Salvador went past the English goal and pierced +2/8, yes, they're in the area where the fans used to be.
You can think of it as they completely pulverized the English team, swept them off the field, and are now looking for a tougher team to play against.
But remember, El Salvador should be a bit tired by now. They've run from their original goal, all the way up to England's goal. That's 8 lines. Then 2 more lines up, so the total is 10.
Fine, they're a good team. But now they're going to play a tougher team than England. They're already tired from running 10 lines, and here they are facing a fresh team that hasn't been playing at all.
In all probability, the fresh team will push El Salvador back a few lines, don't you think?
You seem to be interested enough in MM, maybe you can actually help explain how the different octaves in a a small time frame fit within the bigger frame. I read an entry on this forum but I can't find it from someone who seemed to have figured it out.
Theoretically, the 5min frame would be a subset of 15 which is a subset of 30 mins which is a subset of 60 mins which is a subset of the Daily of the Weekly of the Monthly etc etc etc.
In the attached screen capture, I have the NQ on 15mins and 60 mins.
The 15mins says we're at +2/8 so we better short the sucker. However, it would be foolish to overstay your welcome, because as you can see, the +2/8 on 15mins is 5/8 on 60 mins.
60 mins says we go higher. If you're playing the 60 mins time frame, you shouldn't be looking.
But if I'm playing 15mins, and I ignore the fact that 60 is looking ominous for shorts, then I only have myself to blame.
Fine, I'll take a short at +2/8 on 15mins, but I have to be very quick to exit it. Unless they linger on and wait too long.
If they take their time, we'll probably see the 60 mins frame shrink, and 5/8 would suddenly become +1/8.
Thank you for explaining how you use MurrayMath. I have his book and EOD software but I was curious to know how someone is actually applying these lines to their trading.
With regard to XtradeMM, you are right that it stopped working and I believe that the author of this software decided not to release the source code. Many people in the group requested that he did, but alas it was not to be (if I recall correctly - happy to br proved wrong).
In most indicators I've seen for Murrey Math, you have to input how far back it should go to look for a swing high and low to calculate the lines. For example, if you are on a Daily chart and you set it at 64, then the indicator will look for the highest high from the current bar to 64 bars back and the lowest low within the same time slot. Once it has those two numbers, it starts working its magic and draws the lines. Like with a MA, after a week passes, it will look back 64 bars from the current bar, so 5 bars that were previously taken into consideration, are now left out, so if the highest high, for example, was one of those bars, then now the highest high will not be as high as before, and this could influence the lines. So if you set that to 16, it will look for the HH and LL within the last 16 bars and then draw the lines. These lines could be very different from lines drawn if you use a setting of 64, where it is looking back at 64 days to find the HH and LL. With a setting of 16, the distance between the lines will probably be a lot smaller than using a higher setting. That was why I asked what you meant by a frame of 16. I also know that there are horizontal lines in MM, so the frame of 16 could be referring to 16 bars between each horizontal MML, but that gives no clue as to how many bars back it analyzes to determine the HH and LL.
You are absolutely right, I got mixed up and was saying octave when what I really meant was an eighth. Sorry about that.
What I meant to say before was that lines can change one of to ways. The first one is where the distance between them stays the same, so the just change the number (the soccer court shifts without affecting distances); and the second one is where the distance between them changes as well as the number (the court either gets bigger or smaller).
I understand what you mean about the soccer analogy perfectly.
I can only speak from my experience with indicators, not the actual official software. Like I said in my previous post, the way the MMLs are drawn depends greatly on how far back it's looking for the highest high (HH) and lowest low (LL).
For example, if you set that number at 240 and use a Daily, 60 min, 30 min, 15min, 5min and 1 min chart. Then the amount of time through which it is searching for HH and LL to draw the lines in each timeframe would be:
Daily-----240 days
Hourly---10 days
30 m-----5 days
15 m-----2.5 days
5 m------20 hours
1 m------4 hours
It will be very hard for all of them (meaning all the lines, not just 1 or 2) to coincide at one point in time. The market would have to be trading within the 4 hour range in the 1 min chart for 240 days for all of them to coincide. This is probably never going to happen unless trading halts for good. Some sort of confluence could happen between the 30m and 15m; the 15m and 5m, 5m and 1m, or even perhaps the 60m and 5m in just one line. So I would consider that trading solely from 0/8 to 8/8 while trying to use multiple timeframes, you're probably going to take very few trades, especially if the timeframes are too different, like a 5 min and a 60 min.
This is where using all the lines would come into play. I would think, but my knowledge on this subject is very limited, that if in 5 min chart, price is trading around the 8/8 line and in the 60 min chart, the line is a 6/8 line (which, if I am not mistaken, is a line that serves as resistance when price is coming up), then perhaps one could take the trade based on the 5 min chart, but maybe look to exit at the 4/8 line which might also turn out to be the 4/8 line in the 60 min chart, as perhaps 1 eighth in the 60m equals 2 eighths in the 5 min.
I have found that when using my indicators when the market opens, the lines tend to be much closer together than at the afternoon, since during pre-market hours, price is more likely to be ranging than during the early part of the market session. For example right now in the 1 min chart, at almost 6pm ET, the distance between lines in the ES is just one point, where as at around 10 am ET, the distance between lines was 2 points.
In all honesty, if I factor in the time, effort and aggrevation of intraday trading, complete with taking stops that eventually turn out to be unnecessary, I'd say I was doing much, much better trading off Murrey's EOD software.
Enter at a line, and exit at a line. If you get stuck in a bad trade, you'll find the price will come back to you in a day or two. You'll exit safely or with a minimal loss.
This is especially true if you enter at what I would call Murrey's "major" lines (note: I think in Murrey lingo, there's a different use for "major" and "minor", so please take my definition with a grain of salt).
By major I mean the stronger lines, the blues at 0, 4 and 8, and the reds at 2 and 6.
I'm attaching a screenshot of the EOD software with the lesser lines taken out. Just look at how 1343.75, 1312.50 and now 1281.25 always pull the price towards them at least a couple of times.
If you go short OR long there, you would've gotten a full line's worth (that's 15.625 points on the ES) either way. And if you don't win, just wait a couple of days, you'll get an exit without much of a loss. Of course, for someone who depends on trading for an income, staying a couple of days without income might not be feasible. But he/she can always take the loss and reverse, I guess.
About a year ago, I partnered with a friend in the hope that we'd start entering long trades, instead of restricting myself to short trades like I do. He turned out to be more short-obsessive than me, and we went back to playing the silly game of watching the ES/NQ rise to a point where we can short it, instead of going long.
Worse still, we were doing that intraday and trying to capture every single move down, even during the uptrend. That didn't work out too well and it was exasperating to say the least.
That's our fault, not Murrey's.
In my olden days, what I would've done last night is short the ES around its high of 1296.75, even if it came after hours. Because that's a Murrey line, at least on one of my EOD frames. Then in the morning, in the premarket, I'd come and collect whatever they'd given me, 4-5 points, and sometimes a full line of 7.8125 points. I was kind of hoping to see 1289-ish, but they ES only went down as far as 91.5 I think.
Hmm.. not familiar with that piece of history myelf. Probably at the time I was signed up to Murrey's Real Time 60-day trial.
Another interesting version I saw was for eSignal, developed by a software engineer called Chris Kryza. In addition to the horizontal price lines, it has the VERTICAL lines which supposedly help you TIME the market.
Neither the TradeStation plug-in I'm using, nor any of the Murrey-based indicators out there, and not even Murrey's own RT software, seem to draw the vertical time lines which are in Murrey's EOD software. I think XChartMM did, right?
I think that's a common mis-perception. In fact, you'll hear this presented by people trying to prove the system doesn't have any merit.
I think Murrey's alogrithm goes beyond simply looking back 64 days and figuring out the Highest High and Lowest Low. I don't know the inner workings of the alorightm, but one consideration I can think of is when the price enters a whole new price range.
For instance, something is trading now between the range of $25 and $50, both Murrey numbers.
Once the price ventures into the 60-s, it's entered into a new range. I think its target would then become 62.50 or 75, not sure which.
But your downside target will definitely change from 25. In fact, I think the area between 25 and 37.50 will go off the chart altogether. Instead, your octave will look like it ranges from 37.50 to 75, or whatever numbers are generated by Murrey's algorithm.
We're talking about a stock which has never yet traded at 75, and it certainly didn't trade at that number in the past 64 days. So we can't say 75 is the HH for this period, and yet we see it as a legitimate target on our chart.
For the Dow Jones, Murrey's EOD software has for sometime been showing a target of 13,125. Will it get there? Should it get there within the next 64 days? I don't think that's how it works. But as far as I'm concerned, it remains a legitimate target as long as it appears on Murrey's chart.
If we run out of time before that target is reached, we'll have ourselves a smaller target.
For a deeper insight into the algorithm, try visiting TradeStation's forum. I read there a post by a programmer explaining what his calculations are doing.
