Murrey Levels Indicator
Review of Murrey Levels indicator
Murrey Levels indicator (fig. 1) was created on the basis of the theory of William Gann, the famous American trader of the early 20th century. The key elements of Gann theory are the model (a set of repetitive elements), price and time. The theory was implemented in the prognostic development of «Square of Nine», which was used by Thomas Murray. At the same time, Murrey used the developments of famous traders Williams and Demark.
This indicator allows you to determine the significant levels of support and resistance on the price chart, determines the extrema and intermediate levels, the optimal points of entry into the market and exit from trading on the Forex market. The indicator is mainly used by traders working for a break-down and rebound. Murray has highlighted several basic principles of working with the indicator of your name:
- The jump in sales volume marks the last phase of the upward trend and heralds a change of trend to the opposite.
- If the price breaks through the corridor after the second extremum and goes on the flat, it indicates the dominance of «bears».
- If after the fall of the price there is a decrease in volumes, we should expect a resumption of the «bullish» trend.
- If the reversal to the upward trend is insignificant and continues to grow after the correction, it indicates the beginning of a strong «bullish» trend.
It is believed that the optimal timeframe for working on Murrey Levels is H1. The indicator for Forex shows higher results during the movement of the expressed trends. But it is preferable to use Murrey levels with the supplementary Forex oscillators and tools, which are based on cyclic and wave market theory – Fibonacci, Elliott’s wave and so on.
Murrey Levels effectively shows strong reversal zones and signals of this indicator are considered more reliable in this direction than signals of other tools. In addition, before applying of Murray Levels, it is advisable to get acquainted with the basics of Gann theory and fractal theory of prices – Murray uses this scaling type in his indicator.
Enter the broker’s terminal, add the Murray level indicator to the chart and see what happens
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Murray Levels indicator in MetaTrader 5 platform
Murray Levels indicator is not standard for trading terminals, it must be installed in the MT5 platform. For example, at this link you may download the load file. Then, in the «File» section of the terminal, in the «Open Catalogue» subsection, through the «Compile» process, upload the file to the navigation panel on the left. The value of the indicator settings is «Calculation period».
When placing the indicator on the chart, you should take into account its theoretical basis. In Gann theory, the price movement was divided into 8, the standard period of the indicator, respectively, 64 (fig. 2). In order to obtain a sufficient width of the range and lines on the chart, it is necessary to select the values multiple of 8 by empirical means.
The vertical dimension of the square, on which the indicator is built, determines the price. Horizontal measurement is calculated by rounding off the number of trading days in a year to 256, resulting in 4 quarters of 64 days each. This arrangement is optimal for scaling the calculations. The indicator can be used with other periods as well, and the longer the period, the more responsive the Murray lines are, but the longer the period works effectively on timeframes from one day and higher. A large number of false signals are generated on smaller periods.
Murray Levels indicator signals
The Murray Levels indicator is based on a 8×8 Gann square, which is placed relative to the beginning and end of the trend movement. In price forecasting, the angles of movement relative to the trend are analyzed, while the angle of 45% shows a strong movement. According to Gann theory, after a strong price movement a breakthrough or rollback to one of the levels, which Murray counted 9. According to Gann theory, the most informative is the correction of 50% of extremes.
Murrey suggested a system of lines, the so-called «Octave» (fig. 2): 0/8, 1/8, 2/8, 3/8, 4/8, 5/8, 6/8, 7/8, 8/8. The levels are not equal, Murray singled out more and less strong ones among them:
Very strong lines are the boundaries of the range 8/8 + 0/8. Levels are support and resistance, from which you can expect a strong correction or reversal of the trend, and the rollback from 0 / 8 in the direction of growth is more likely than the rollback of 8 / 8, but at this level there is a breakthrough more often. At these levels, the trader should be especially careful, as the trend can change very quickly. The levels 7/8 and 1/8 are weak, most often the trend crosses them quickly and goes to stronger levels 8/8 + 0/8 or 4/8. But sometimes there may be a correction on the levels 7/8 and 1/8 as well.
The central line is 4/8, it is a strong line, it can be the main line for opening positions. In this case, if the price is above the level, the line serves as a support. If the price is below the level, the 4/8 line becomes a resistance. It is also noticed that before the break-down the price can fluctuate for a long time near this line. At the same time, there can be a lot of false breakdowns at this level. Once the trend reaches the 2/8 and 6/8 level, it is often corrected or even reversed, and these levels represent a strong resistance.
The 3/8 and 5/8 lines often act as a long sideways trend range. In these limits, the price fluctuates more than 40% of the time. It is believed that if a trend breaks through this zone, it is likely that it will move on, not back. However, if the price does not leave these levels for a long time, it is more expedient to open positions in the opposite direction from the line. If the trend is higher or lower than the lines, we should expect the formation of a new trend in the Forex market (full truth about Forex).
Strong support and resistance levels are -1/8 and +1/8 lines. Often the price bounces off the boundaries of this range and returns to the current trend. But if there is a breakthrough, then, most likely, a new trend is formed. After crossing the -2/8 and +2/8 lines, all indicator levels are rebuilt according to local extremes. By the way, the zone from 8/8 levels to +2/8 levels is a zone of overbought market, and the levels from 0/8 and till -2/8 is an oversold zone.
When analyzing the market situation, it is recommended to analyze long timeframes. The most accurate confirmations are in the ranges of 0/8 or 8/8. The main signals of the Forex indicator are movements above 5/8 or below 3/8. When applying Murray Levels, it is necessary to keep in mind that they do not react to fast movements and use this indicator in a stable market. It is not recommended to trade on levels against the trend. When using Murray Levels, the preliminary analysis of the situation should be done on the higher timeframes, the inferior timeframes are needed to confirm the market entry points. The advantage of the indicator under consideration is that it clearly shows the most important price channels, allows you to define more precisely the goals and set stop-losses.
Trading strategies based on Murray indicator
Murray indicator is visually complicated, its setting takes time scaring many traders, so it’s used much less often, than it’s supposed to be. Nonetheless there is a great number of Forex strategies designed both for trading it only and with other indicators. In one of them, apart from Murray levels, the exponential moving averages at closing prices are used: EMA with the period 9 and EMA with the period 31; Momentum with the period 100 and Demark indicator (fig. 3).
Recall that the Demark indicator shows the overbought and oversold, divergences, clearance signals of support and barrier levels. In this strategy the Demark indicator is required for the definition of trend lines and indication of targets. The considered strategy is implemented on any assets, being traded rather on the timeframe over H1. Ideally it is implemented on stable, vibrant trends.
The purchase signal will be crossing EMA (31) moving average by EMA (9) upwards, the clearance of Demark line by price, Momentum is supposed to be over the level 100. The Murray shall show the price over the lines 2/8, 4/8 or 6/8, therewith proving the ascending trend. The sell signal will be crossing EMA (31) moving average by EMA (9) downwards, the clearance of Demark line by price, Momentum is under the level 100, the Murray indicator is supposed to be under the levels 8/8, 6/8 and 4/8.
The strategy with Murray levels tends to involve the bounce trading. Such signals often appear on 1/8 and 7/8 levels after they have already failed while being tested. The signals proving the trend, form after the basing stage at any level. The clearance trading is the best possible at 3/8 and 5/8 levels. But the strategy just with Murray evels involves the quite profound market understanding. The developer of the indicator suggested a trading strategy using the indicator with moving averages, with 5, 20, 50 and 89 levels (fig. 4).
As part of this strategy, if the EMA prices are placed on the chart from top to bottom and the prices are above the level of 4/8, it is considered as a signal to buy. If EMA line up in the order of 20, 5, 50, 89, it is considered as a signal to sell. The order of EMA placing 50, 20, 5 and 89 is also a signal to sell, but it is necessary to track the beginning of price growth in order to place a buy order in time.
Murray Levels can be supplemented with Zigzag indicator. This indicator is designed to highlight the highest or lowest values on the chart, which it connects directly by lines, thus cutting off minor fluctuations. The strategy with Murray Levels is implemented on a timeframe from H4 and above. Trading is performed from the extremes marked with ZigZag indicator, if one of Murray Levels shows the clearance. If you add a CCI commodity channel oscillator to this strategy, it will confirm the signals of Murray indicator. In this case, the buy signal will be a CCI curve exit from the area of -250, level clearance -100, while the Murray indicator fixes the rebound on the line 1/8.
Murray Levels is quite an effective trading tool, but it is quite difficult to learn, so sometimes it is underestimated by traders. The indicator quite accurately defines support and resistance, defines the consolidation zones and gives clear reversal signals. When you get acquainted with the tool in detail, it can significantly improve your trading results. However, it is advisable to use the Murray Levels indicator in optimal conditions – on a stable market and on the appropriate timeframes, with additional indicators, as well as to have sufficient practice of trading in the Forex without risk. Although there are simplified strategies with this indicator.