If you search around for profitable trading methods, it is only a matter of time before someone mentions Murrey Math. Murrey’s thoughts on the system (as cited through many articles he had written for Traders World) is a bit incoherent. Seemingly, the system generates some values based on the high and the low of the trading session.
There are two ways with the help of which a trader can expect to make money in the markets. The first method is to buy low and to sell high. The second method is to trade with the trend i.e. to buy high with the intention of selling ever higher (or sell low to take profit when the price falls even further).
Murrey Math will come under the first category. In other terms, Murrey emphasizes on the fact that buying low and selling high (or selling high and buying low) is the fastest way to accumulate profits.
Now, some of the traders might disagree with me. They think that trading against the trend will in fact end up hurting their trading accounts badly. I will leave such aspects to the discretion of the traders – do whatever that generate profits for you – in a consistent manner.
Although many traders know that they might need to buy low / sell high, it is tough for them to place their trades. They do not know when to buy low and when to sell high while expecting a reversal to happen. This is where Murrey Math jumps in to save the day.
As mentioned earlier, the Murrey Math system will generate 13 levels based on the high price and the low price of the trading instrument. The exact high / low price used depends upon your trading outlook.
For instance, the day traders can use the current day’s high and low price. Swing traders focusing on medium term trends should use the weekly or the monthly highs and lows. Traders who look into even longer terms will be comfortable with the yearly highs and lows.
You have the option of buying the proprietary system from Murrey himself. The alternative is to look out for the excel sheets that contain the calculations. Be wary of the latter alternative because there are too many sheets circulating the World Wide Web – and all of them claim to produce the most accurate results.
Once you have the excel sheet, just enter the high and the low price of the trading instrument. The sheet will generate 13 levels and then you can start placing orders based on these levels.
Ideally, you should be selling when the price touches 7/8, 8/8, +1/8 and +2/8. Instead of placing sell orders at each of these levels, it will be better to sell at 7/8 while setting the stop loss just beyond +2/8. Likewise, you can set buy orders at 1/8 and the stop loss for this trade should be ideally below the -2/8 value.
At the first glance, it might appear unwise to trade against the trend. You might even end up losing some money in the process. However, according to Murrey, small losses are essential. The large profits that happen every time the price reverses will end up adding into your trading account.