By ForexBonusLabs

There are many trading strategies for trading financial markets, all of them having advantages and disadvantages, being more or less relative, more or less exact, etc. This is the beauty of trading financial markets as there is no such thing as unlimited success. To be constantly profitable in this business one should master multiple trading strategies and techniques, be aware all the time of the fundamental factors that influence trading, and try to be proactive.

Out of many trading strategies and theories that exists, trading with the Murrey lines has plenty of advantages to offer: first, it is visible, and its simplicity is sometimes misleading as traders are confused and don’t know what to do with these lines; second, it has clear and simple rules, easy to follow and understand; last but not least, it fits with any market (currencies, indices, etc.).

The whole idea of this theory is based on the fact that markets are consolidating most of the time and using the Murrey lines one can actually know when/if price is ranging and if important levels are broken or not.

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Murrey lines consist of eight colored lines the whole concept is based on, plus another four (two for the oversold territory and two for the overbought territory). The most important line is the fourth line (the blue line) and this one is the cornerstone of the theory, hence, the most important one. It is also called by some the bull bear line, or major reversal line, as price above it signals a bullish stance, while price below signals a bearish stance. The image below shows a four hours chart with all the lines represented so you can see the color code there.

Above and below the fourth line are two green lines called upper trading range and lower trading range, and they are labeled as being the fifth and the third line. Like the name suggests, they represent the edges of the range and when price is consolidating then look at the distance between the third line and fifth line to represent the range, with the blue line, the bull/bear line to be the middle of the range.

The sixth and the second lines, the red ones, are called pivot reverse line and if price breaks these lines it signals the range prior to this is considered broken. Like the name suggests here too, these lines are pivotal so a bull trapped on the long side when price is breaking the second line should be aware that the tendency for a move even lower is quite high.

The yellow lines, the seventh and the first lines, are perhaps the most loved by traders as they have a double interpretation. First of all, these are supposed to be weak lines, so if price breaks such a line then the normal thing to watch for is a move to the next Murrey line. Second, these lines are supposed to be fast reversing lines. So, if a line is so weak but price is still hesitating to break higher, it means the move is fake and the reverse should be strong. Almost always when price reverses from such a line goes to the previous line, the pivotal line (red).  The images below show one example for each instance presented above.

Beside the above mentioned lines, the zero and eight lines (blue light lines) represent overbought and oversold territory. If price managed to come to these lines and above (below), then one should start looking for reversal patterns on lower time frames as the chance of a reversal is quite high.

Trading with Murrey lines offers an alternative to classical Elliott or new thinking in technical analysis like Drummond geometry or DeMark, and should be take into consideration when trying to define a range or to identify overbought and oversold territory.

This trading strategy is written up by John from Forex Trading Bonus who is trading professionally with retail brokers for over 4 years. You can check out his resource for more information on the most popular Fx brokers and best forex deals that exist today.

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