this guy explain it well;
I will try to give a brief summary. The main advantage to Murrey Math is that you know with one piece of information ( the current price ) what to judge the price behavior with. This is because the support/resistance prices are FIXED and remain the SAME. Start with 100. Divide by 8 = 12.5, divide by 8 again = 1.5625. Lastly divide by 8 again = 0.1953125 ( =~ 19 cents ). You will see from reading Murrey's book that everything has do with 1/8, 2/8, 4/8
and then 8/8 = 1/8 of higher octave. So, you form squares based on 1/8, 2/8, or 4/8 of some division from 100. Murrey also states in the book that 1.5625 is key for most stocks between 12.5 and 100. Meaning we want to judge things off multiples of 1.5625.
No matter where the stock price is, the same lines apply. For instance, Alcoa (AA) is currently trading at 24.30 or so. So, we want to look at the lines which are near the current price. That would be 25 ( = 8/8 ) and 23.4375 ( = 7/8 ). The next line down is 21.875 ( = 6/8 ). If you take the recent 16 bar chart, you see that there is a low at 21.86 on 11/13/2002 and a high at 25.17 on 11/22/2002. So, we have a nice fit for a square from 21.875
( = 6/8 ) to 25 ( = 8/8 ). This is a square of size 2/8. Remember,
everything is 1/8, 2/8, or 4/8 of some octave interval. So, we would trade using this square until the end of the square unless price CLOSES above +2/8 of the current square ( = 25.78125 ) or CLOSES below -2/8 of the current square (= 21.09375 ).
Now, let's go to the Gann crowd to compare and contrast:
Murrey Math square
8/8 = 25.00
7/8 = 24.61
6/8 = 24.22
5/8 = 23.83
4/8 = 23.44
3/8 = 23.05
2/8 = 22.66
1/8 = 22.27
0/8 = 21.87
Gann Square
8/8 = 25.17
7/8 = 24.76
6/8 = 24.34
5/8 = 23.93
4/8 = 23.51
3/8 = 23.10
2/8 = 22.69
1/8 = 22.27
0/8 = 21.86
Now, let's say price rallies up to 25.68 - what would be the effect on our squares?
Murrey Math stays the same except for adding two lines over the top to judge overshoot.
+2/8 = 25.78
+1/8 = 25.39
8/8 = 25.00
7/8 = 24.61
6/8 = 24.22
5/8 = 23.83
4/8 = 23.44
3/8 = 23.05
2/8 = 22.66
1/8 = 22.27
0/8 = 21.87
Gann Square must be RECALCULATED ( it's a new world now! )
8/8 = 25.68
7/8 = 25.20
6/8 = 24.72
5/8 = 24.25
4/8 = 23.77
3/8 = 23.29
2/8 = 22.81
1/8 = 22.34
0/8 = 21.86
Notice also that we know from Murrey Math that 25.78 is a VERY IMPORTANT PRICE if we close over it. This is because the square would then increase in size to a square of size 4/8 ( 4 * 1.5625 = 6.25 ) from 21.87 to 28.12. Thus, our stock would then be near the 5/8 line in the bigger square. The Gann square
tells us nothing except that we are at the high of the current move. If price closes at 25.80, we know a world of information from the Murrey Square, but the Gann square still only tells us that we are at the high of the current move. You can see that as a stock continues in a trend, the Gann square is basically useless until it stops and reverses. The Murrey Math square provides valuable information even during the trending period.
About memorization and additional information. Let's say we now want to check out JC Penney (JCP). It is currently at 22.93 or so. With Murrey Math, we know INSTANTLY that the lines of importance are 18.75 ( = 4/8 ), 20.31 ( = 5/8 ), 21.87 ( = 6/8 ), 23.44 ( = 7/8 ), and 25 ( = 8/8 ). Why do we know this INSTANTLY? Because the LINES ARE THE SAME FOR EVERY STOCK! It is currently in a square from 18/75 ( = 4/8 ) to 25 ( = 8/8 ). So, basically in as quare of size 4/8. We immediately know 2 things - JCP is moving TWICE AS FAST as AA, since it's 16 bar square is twice as big, and it is currently near the 6/8 line in the square.
With the Gann square, it's back to square 1: Low = 18.45 on 11/11, and High = 23.79 on 11/22. We must then calculate the square and keep recalculating every time the price moves outside of these bounds.
Hope this helps.
Anyone else feel free to add what is missing here...
Mike
