for me there's absolutely no difference between murrey math, fibonacci levels, trend lines, moving averages, etc. as long as there are enough people trading the same way and are able to move the market, then it really don't matter and price should react at those levels.
on the other hand, you can draw the nicest trend lines on a 5 min chart, but if nobody else is doing the same thing, well you might be out of luck.
conclusion a: if a whole bunch of big players would be using a flawed murry math indicator, then of course this indicator would be very useful.
conclusion b: since I don't believe conclusion a is very likely to happen, I'll stick with the old fashioned "time and sales", where you don't have to depend on anybody else.
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On a chart, where is opposing order flow more likely to occur?
Murray math line?
Fibonacci line? VWAP band?
Market profile line (VAH, VAL, POC) ? Pivot point and its multiples?
Previous Swing highs/Lows?
Iinitial Balance High/Mid/Low and one of its multiples?
Moving averages (20, 50, 100, 200)?
Did i miss one?
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This is a really interesting question. In a subsequent post Fat Tails frames nicely the "why" of it and that is essential for me. I have house guests now but I will be interested in contributing and more so in learning from the perspectives shared here.
Last edited by wldman; May 27th, 2012 at 07:54 PM.
Reason: add'l info
I used to be one of the people who thought price reacted at a level because that is what it looked like on my chart. I am referring to fibs, moving averages, murrey math lines, and everything else.
Then I finally woke up and realized that is not at all the case. It was just my perception, which was totally false.
You can see me trying to convince others of this in the Random Line Theory thread. Unfortunately, most people still don't get it.
I also agree with trendisyourfriend's last post. Again my overall philosophy is to look for the simplest explanation, and not the most complex. A MML line is most certainly not a reasonable simple explanation.
If you use an indicator as an area of interest, fine. But when you use an indicator and assign it properties it does not posses, that is when you get in trouble. For example, if you want to say that 61.8% is an area where price may reverse, fine. But it may reverse at 48%, 52%, 54%, 56%, 58%, 60%, 64%, 66%, 68%, 70% or anywhere or nowhere in-between. So if you become convinced that 61.8% or another fib number has magic predictive properties, that is where the problem starts.
Same is true for any other indicator or even chart patterns.
As for what I use these days, I have three charts per market. 1 day, 240m, 60m. The 1 day chart is volume profile, which consists of VPOC, VAH, VAL and a Composite Profile. It gives me three "lines" per day, and extends them to the right until they are hit. On the 240m and 60m chart, I have one indicator that marks Swing High/Low's and extends them until they get hit. The only other thing I do is manually draw trendlines on those charts.
One could certainly make an argument as to why volume profile is any different than murrey math lines. And I will leave you to that to decide on your own.
I think the biggest thing for me is simply understanding how your mind works when it comes to perception. Once you understand that what you see is not a fact, but just a perception, it can help you. That was the goal of the Random Line Theory thread.
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It's really simple.... write a strategy based on these indicators and if back testing it produces a profit... that proves either that the indicators work.... or that back testing is bogus too... a bit of warning though... proclaiming that back testing is a sham will cause a bigger reaction than just kicking Gann and Murrey to the curb ....
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I'm just a simple man trading a simple plan.
My daddy always said, "Every day above ground is a good day!"
The point is that I do not even consider certain approaches to trading as rationalist, but I simply would describe them as mumbo jumbo. A rationalist would be able to describe some feedback loops or potential price movements and then "predict" the market according to his model.
Also I would not compare Leibniz and Gann. Leibniz developed the binary numeral system, differential and integral calculus, he is even the father of the concept of self-similarity, which was later used by Mandelbrot to describe fractals. Not going to enumerate other things he did. Gann basically just developped a few obscure ideas.
I absolutely agree on the importance of empirical validation of any models. And if you look at the thread "Risk of Ruin" you will find that the model based on the properties of Bernoulli distributions is in the end subject of an empirical Monte Carlo test, which indeed gives a better simulation of drawdowns than any model.
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