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Publish Date07/12/2012 09:58:16 AM
Last Update07/12/2012 10:13:36 AM
Most of traders are presently using the price action techniques to predicate the coming movements. Actually, the price action trading techniques shows how the price reacts and behaves at any specific point of time.
Modern techniques of trading by price actions tell you to watch how price behaves at points of support and resistance .
There are various methods of defining the points of support and resistance such as Fibonacci tools, murrey lines, historical prices etc.
Murrey Math technique is a very complicated technique with complex calculations but simply speaking, it divides the price and time into octaves which act as supports and resistances.
The main concept here is that all markets behave in the same manner based upon the observations made by W.D. Gann in the first half of the 20th century.
The great contribution of Murrey Math (T. H. Murrey) was the creation of a system of geometry that can be used to describe market price movements in time. This geometry facilitates the use of Gann`s trading techniques.
The Murrey Math trading system is composed of two main components; the geometry used to indicate the price movements of a specific market and a set of rules that are based upon Gann and Japanese candlestick formations.
Remember, Gann believed that after an entity has a price movement, that price movement will be retraced in multiples of 1/8`s (i.e. 1/8, 2/8, 3/8, 4/8, 5/8, 6/8, 7/8, 8/8).
So, if a stock moved up 4 points Gann believed the price of the stock would reverse and decline in 1/2 point (4/8) increments (i.e. 1/2, 2/2, 3/2, 4/2, 5/2, 6/2, 7/2, 8/2 ...). Since prices move in 1/8`s, Murrey Math divides prices into 1/8 intervals.
Since, according to Gann, prices move in 1/8`s, these 1/8`s act as points of price support and resistance as an entity`s price changes in time.
The hourly chart of the EURJPY pair shows that the price went sharply downwards from the ultimate resistance and is currently showing some kind of consolidation around the ultimate support level; noting that the PP (Pivot Point) is the main level as when the price is above it traders should buy and when it is below it traders should sell.
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