When selecting the best entry points for a trade, it's not enough to rely solely on support and resistance lines. That's why many traders use a larger number of levels in trading.
One of such tools is the Murray levels. For many users, this indicator seems too complex to use, but in this article, we will explain what it is and how to use it for profit.
To learn more about other ways of plotting levels on a chart, the rules for their use in trading, as well as their advantages and disadvantages, you can read the article Levels trading.
What are Murray Levels?
When it comes to charting, there are two key support and resistance levels: one on top and one on the bottom. But those who want to dive deep into market analysis and find the best spots to start trading, sometimes use additional levels.
Some tools let you add several markers on a chart all at once. These lines help you spot not just support and resistance but potential reversal points, as well as where to enter the market and where to lock in your profits.
The Murray Levels are precisely one of those tools. With them, you’ll see twelve levels on your chart. Eight of these are your primary ones, and the other four are there to back them up. Plus, there’s a central line from which other lines are plotted.
So, let’s break down the elements of this tool. Each line is marked with fractions like 1/8, 4/8, and so on. Next we describe each level in more detail.
The central line is 4/8. It can either be support or resistance, depending on where the price is located. It's a strong level where reversals or breakthroughs often happen after several preliminary attempts to breach it.
The levels of 0/8 and 8/8 are considered the strongest markers. It is quite challenging to break through them, so the price mainly bounces off these levels. On the other hand, 1/8 and 7/8 are the weakest levels, which the price chart breaches effortlessly.
The levels of 2/8 and 6/8 are of medium strength, and breaking through these levels or bouncing off them has about a 50% chance. The 3/8 and 5/8 levels typically mark the boundaries within which the price moves during consolidation periods or in a flat market.
Additional levels
As mentioned earlier, in addition to the main nine marks, four auxiliary levels are also plotted on a chart. They are labeled with the same numbers but with the addition of "-" and "+" symbols.
The -1/8 line is called an extreme support during a prevailing downtrend, while the +1/8 line is termed as extreme resistance during a dominant uptrend.
When the chart reaches these marks, it suggests that the current trend is weakening. Typically, upon reaching these levels, the trend doesn't reverse, but a pullback to the 0/8 and 8/8 lines might occur.
The next two levels are -2/8 and +2/8. The former is the ultimate support and the latter is the ultimate resistance. So, when the chart crosses one of these lines, it indicates the formation of a strong trend.
This, in turn, implies the need to adjust the levels based on new data. The creator of this method recalculated levels manually, but only after at least four candles closed above or below the breached level.
Nowadays, plotting and adjusting of levels happen automatically, just after a breakout of the next candle. Among traders, it is referred to as the redrawing of lines.
For this very reason, these additional levels are also significant, and one shouldn't overlook marking them on the chart. They indicate the beginning of a new trend.
Murray Levels on MT4
Even though this indicator isn't built into the basic set of analytical tools on the MT4 platform, you can easily download it from the internet and add it to your trading terminal.
Once you've done that, you'll need to make some specific adjustments to ensure the indicator works properly. To do this, head over to the "Properties" section and select the "Input Parameters" tab.
Here, you have the option to pick the colors that will be used for the lines when they're displayed on the chart. Opt for vibrant, contrasting colors that will stand out and provide a clear picture of what's unfolding.
There are two more indicators that can be customized - P (number of bars) and StepBack (historical offset). However, some users prefer to leave them unchanged. These parameters are adjusted based on price history.
The clearer the indicator works with historical data, the better it will perform on the chart at the current moment and in the future.
The key parameter to focus on when configuring this tool is MMPeriod. It determines the period of the chart that the lines will be applied to.
This period is denoted in minutes and is adjusted depending on the preferred timeframe. In the default settings, the period is set at 1440, which equals one day (24 hours multiplied by 60 minutes).
However, if the user intends to use different time intervals, then the value for MMPeriod should be chosen differently. For example, for the M15 timeframe, the value would be 15, for H4 - 240, for W1 - 10080, and so on.
Patterns Formed by Murray Levels
Based on the levels discussed above, various patterns can form on the chart, indicating either an upward or a downward price movement.
- Bullish pattern is formed by the lines 0/8, 4/8, 1/8, and 8/8. Initially, the price moves in an upward direction from the 0/8 mark to the central line at 4/8. Then, there's a minor pullback to the 1/8 mark, followed by a continued upward price movement towards the 8/8 level.
When such a model is formed, it's important to choose the entry point into the position correctly. A long position is opened when the chart retraces to the 1/8 mark, and the profit target is set at the 8/8 mark. A Stop Loss is placed just below the entry point.
2. The bearish pattern is created by the levels 8/8, 4/8, 7/8, and 0/8. Initially, the price moves downward from the 8/8 mark to the central line at 4/8, followed by a slight pullback to the 7/8 mark. Subsequently, a reversal occurs, and the downward movement continues to the 0/8 line.
The entry point for a position is chosen when the chart retraces to the 7/8 level. A short position is initiated when the chart touches this mark, and the profit target is set at the 0/8 mark. The Stop Loss is placed above the 8/8 level.
If the user isn't entirely confident in the reliability of the formed pattern, they can adjust the Stop Loss as the price progresses through the levels. This creates a sort of trailing stop, allowing for a certain level of profit to be obtained.
Apart from the patterns described above, there are smaller-sized patterns that may not appear as significant on the chart but can also provide profit opportunities.
In such cases, to form a bullish pattern, the 0/8, 3/8, 1/8, and 4/8 marks are used: starting with a rise from 0/8 to 3/8, then a retracement to 1/8, and another rise to 4/8. In the formation of a bearish pattern, the levels 8/8, 5/8, 7/8, and 4/8 are involved: beginning with a decline from 8/8 to 5/8, then a retracement to 7/8, and further decline to 4/8.
What is the basis of the Murray theory
Thomas Murray is a well-known trader who managed to translate the complex and often unclear method of William Gann into a language that is simple and easily understandable for ordinary traders.
The foundation of Gann's methodology involves plotting squares on a chart, with price moving through each square as it progresses. To draw these squares, two local peaks and two local bottoms are initially connected.
Connecting the highs results in an 8x1 line, while connecting the lows creates a 1x1 line. From the first level, eight equal zones are projected along the time axis, and from the second level, another eight zones are projected along the price axis.
According to the author's assertion, if the chart is positioned above or below the 1x1 line (depending on the dominant trend), there's a high likelihood of the dominant trend continuing.
As per Gann's method, price progresses from one level to the next. Each price impulse is divided into eight parts, where each movement constitutes 1/8 and serves as a potential correction point.
This methodology often appears too intricate for understanding and practical application among many traders. It's for this reason that Murray simplified Gann's theory, subsequently making it accessible for application by numerous traders.
Building on Gann's method, Murray devised his own system of levels, which led to the creation of the Murray Levels indicator. These marks are placed solely horizontally along the time axis on the chart.
Through a systematic measurement of price movement angles and corrections, the Murray methodology proves to be more flexible, enabling the prediction of price changes across all time intervals.
Market Cycles in Murray's Theory
Thomas Murray placed significant emphasis on the factor of time in his theory. This factor tends to attract less attention from users who are more fixated on price fluctuations.
Murray attributed importance not only to price oscillations but also to the duration of the price chart's presence within zones of minimal and maximal values. Based on his observations, he managed to identify four primary consolidation periods for staying within the upper part of the range:
- From 4 to 7 days;
- From 10 to 12 days;
- 20 days;
- 40 days.
There are five periods of time when the chart remains in the lower range and they vary. The first three periods coincide with peaks. In addition, there are periods of 30 days and several months (from 3 to 24).
Understanding and taking into account the data intervals during a price reversal at Murray levels provides the opportunity for precise forecasting of when a downtrend (following consolidation at peaks) or an uptrend (following consolidation at troughs) will begin.
In his methodology, Murray placed special emphasis on the 45-day period, as it represents 1/8 of a year. Consequently, many of the previously mentioned periods are multiples of 45.
Additionally, according to the author's perspective, each time interval possesses a unique movement rhythm. Once such a rhythm is identified and combined with the aforementioned consolidation periods, more accurate forecasts can be generated.
To uncover this rhythm, it's essential to select a pair of extremes. These extremes might not necessarily be adjacent, but they should be clearly noticeable on the chart.
Next, it's necessary to measure the distance between these points and project it further several times along the time axis. This creates several vertical lines, evenly spaced from each other.
With the correct placement of these vertical lines, you can observe that significant price reversals tend to occur around these lines.
Murray's Time Squares
However, Murray didn't stop there. To conduct even more detailed market analysis, you can apply the so-called time squares on a chart. In this section, we'll explore how to do this and how to use it in trading.
So, we've already deducted that when you overlay Murray's horizontal levels and vertical lines of market rhythm on the chart simultaneously, it creates a grid composed of rectangles.
But we need to transform these rectangles into squares. To achieve this, the larger intervals between the vertical lines need to be halved or divided into more parts (depending on the distance between them).
Adding these extra lines allows you to observe that price also undergoes minor reversal movements at these lines. This confirms that the market rhythm persists even within smaller timeframes.
Furthermore, diagonal lines can be drawn through the corners of the larger squares. This way, the Gann grid is additionally applied to the chart. In combination with Murray's levels, this tool provides even more opportunities for analysis.
Firstly, we use the horizontal marks to identify points of rebound or intersections with the chart. Secondly, the vertical lines help us locate price consolidation areas within the zones of most significant peaks and bottoms.
Thirdly, we examine how the chart moves in relation to the diagonal lines. Using these lines, it's possible to find central levels around which the price tends to linger for long time.
Murray Levels and Candlestick Patterns
Typically, the discussed indicator is applied independently from other analytical tools, so only the levels themselves are plotted on the chart, without any additional marks.
However, some traders who prefer to combine technical analysis with price action complement the indications of Murray levels with the use of candlestick patterns. There are specific candlestick patterns or their combinations that signify particular situations.
Primarily, attention should be given to candlestick combinations that predict price reversals. There are patterns that indicate future price changes in either an upward or downward direction.
Some of the most well-known bullish patterns that point to a potential reversal in the upward direction are the Hammer, Bullish Harami, Morning Star, Bullish Engulfing, and others. Let's delve into some of them in more detail:
• The Hammer consists of just one candle with a small body and a long lower shadow, while the upper shadow is short or there is no shadow at all. The signal is considered more accurate if the candle body is green.
• The Bullish Engulfing pattern includes two candles, the second of which is a "bullish" candle that completely engulfs the body of the previous candle.
• The Morning Star pattern consists of three candles: a red one with a large body, a green one with a small body, and another green one following it, but with a larger body. In this case, the price reversal unfolds more smoothly and evenly.
The most common "bearish" patterns are the Falling Star, Bearish Engulfing, Hanged Man, Bearish Harami, and others. Let's examine them in more detail:
• The Falling Star (Inverted Hammer) is a single candle with a small body and a long upper shadow. When this pattern emerges, a sharp trend reversal from bullish to bearish is expected.
• The Bearish Engulfing pattern is the one consisting of two candles: a smaller green one followed by a larger red one.
• The Hanging Man pattern looks similar to the Hammer, but it appears at the end of a bullish trend, singlalling a reversal to the downside.
Other tools
To confirm signals of the discussed indicator, not only Price Action patterns can be applied. The Murray levels can also be used in combination with other technical indicators in MT4.
One commonly used tool in addition to Murray levels is moving averages. The method's author himself suggested overlaying the chart with moving averages with the following values:
- Weekly (5-period) - a short-term MA;
- Monthly (20-period) - intended to reflect the key trend;
- Medium-term (50-period);
- Long-term (89-period) - for determining the strategic direction of price movement.
Thus, alongside horizontal levels, traders gain access to additional lines, rebounds from which also serve as strong signals.
Moreover, signals can be derived from the intersection of MAs and their relative positions. For instance, the crossover of moving averages with periods 5 and 20 indicates a short-term chart reversal.
If all the lines are arranged on top of each other in ascending order, it indicates a stable upward trend and can be used as a signal for opening buy trades. Conversely, if the MAs are arranged in descending order, it's a sell signal.
Moving averages are a lagging indicator, so often you can see confirmation of Murray levels signals. Besides moving averages, volume indicators can also be used as supplementary tools.
If there's an upward movement in the chart and it reaches one of the key Murray levels while trading volume increases simultaneously, it points to a potential reversal and a change in the current trend.
If the chart demonstrates a prolonged downward movement and trading volume drops simultaneously, one can anticipate an upcoming reversal towards an increase.
Additionally, during consolidation periods, trading volumes usually decrease, and by the time a corrective movement is completed, they tend to rise. This is indeed a precursor to an impending reversal and the start of a new trend.
Pros and Cons
All tools used for market analysis come with their pros and cons. The Murray levels are no exception. Let's delve into their advantages and disadvantages in more detail.
First, the key benefits of this indicator are:
- Accuracy and Clarity. The levels plotted on the chart provide a clear picture of market dynamics. They help identify not only support and resistance levels but also gauge the strength of the current trend.
- Self-Sufficiency. This indicator can be used independently of other tools and doesn't require additional analytical instruments. They can be used optionally at the trader's discretion, but it's not mandatory.
- Ease of Use. Even novice traders can grasp this tool relatively easily. It only requires learning and memorizing which levels are stronger and which are weaker.
- Universality. Although initially developed for trading stocks by its author, it can now be applied to various assets and timeframes.
- Automatic Plotting. The levels are automatically plotted on the chart, eliminating subjectivity and user errors when manually drawing them.
On the flip side, some drawbacks of this tool are:
- Accuracy depends on settings. If this indicator is used on a timeframe other than daily, it needs to be adjusted accordingly. Neglecting this adjustment can lead to unprofitable trading.
- Redrawing. The Murray levels can exhibit both "correct" and "incorrect" redrawing. In the first case, levels are redrawn after the breakout of boundary levels, and trading should be based on the new marks. In the latter case, traders should adhere to previously marked lines.
Guidelines for working with Murray Levels
Many traders tend to shy away from integrating the discussed indicator into their trading algorithms. However, when wielded correctly, Murray Levels on MT4 can significantly enhance your trading account.
Within this section, we've compiled essential rules for effectively utilizing this indicator. Take a moment to acquaint yourself with these principles and apply these levels seamlessly.
1. The levels are automatically plotted on the chart, which means your main objective is to accurately set the foundational parameters. Initially, employing the default standard values is advisable.
2. Although it's regarded as a self-sufficient indicator capable of independent use, you can augment its insights by incorporating candlestick patterns.
3. When employing Murray Levels, it's recommended to conduct analysis on higher timeframes, starting from the daily timeframe. This specific timeframe is integrated into the indicator's default settings. For identifying entry points, shorter time intervals can be used.
4. It's essential to retain a clear understanding of which levels carry stronger significance and which hold lesser weight. This understanding will prove pivotal when deciding upon opening positions.
5. Keep in mind that the price primarily moves between the 0/8 and 8/8 marks, as these levels hold the most strength and serve as both support and resistance. The price's rebound from these lines or their breakthroughs are the most crucial signals.
6. When the chart reaches the lower boundary and bounces off it, a new upward trend begins to form. Bouncing off the upper boundary initiates a descending movement. It's precisely at these points that positions previously opened should be closed, and new positions should be entered, but in the opposite direction.
7. Analyzing the chart's position relative to the central line (4/8) is also significant. When this line is crossed and holds above it, it indicates a continuation of such a movement. If the breakthrough occurs in an upward direction, it confirms bullish sentiment. If it's from top to bottom, it signifies bearish sentiment.
8. Don't forget about plotting additional levels on the chart. The chart touching the -1/8 and +1/8 levels signifies a weakening current trend. Breaking through the additional marks of -2/8 and +2/8 marks the beginning of a new trend and the necessity to readjust the levels.
Conclusion
In this article, we've delved into the key aspects of applying the Murray Levels MT4 tool. At first glance, it might appear complex to use, but upon closer examination, it becomes quite comprehensible and straightforward to apply.
This tool can be utilized even by novice traders, as it enables them to identify the most important marks through which the chart progresses. Moreover, these levels can serve multiple purposes simultaneously: determining entry positions, setting protective orders, and establishing profit targets.
The discussed indicator has just a few drawbacks, and among its advantages are its self-sufficiency, versatility, and ease of use.
Murray's theory took into account not only price fluctuations but also the factor of time. Therefore, by adding additional vertical lines to the chart, you can construct temporal squares. This provides even more opportunities for analysis and signal generation.
Despite being self-contained, this indicator's readings can be complemented by other tools. For instance, one successful approach involves combining Murray Levels with candlestick patterns.
Additionally, the theory's author himself recommended incorporating a specific combination of moving averages. When MAs intersect or arrange themselves in a certain order, they offer signals to the user.
Volume indicators also harmonize well with this discussed tool. As the chart approaches key levels while volumes change simultaneously, it indicates an impending trend shift.
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