John Murphy: Economist, Trader and Father of Technical Analysis

When it comes to Technical Analysis, one cannot help but mention John Murphy who, with his work, has shown the basis of market analysis from a purely technical point of view.

We all know that technical analysis is a very powerful tool to evaluate the performance of a market and a single stock but if there is a “manual” that shows the characteristics of this forecasting method it is certainly “Technical analysis of financial markets” by John Murphy.

In addition to this, in our guide we will have the opportunity to:

• Study John Murphy’s Thought
• Show his teachings
• Analyze the trading strategies studied by him

Obviously the theory is not enough, to make trading effective you have to put it into practice and to do it you need trading platforms and reliable brokers.

In this guide, therefore, in addition to outlining the salient features of John Murphy’s life and teachings, we will also evaluate the most suitable platforms to put his dictates into practice.

We are talking about online brokers such as eToro and ForexTB, which combine security and reliability with the best technical tools available to traders. Below you can find a list of the best trading platforms on the market:

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John Murphy, Trader and Economist

John Murphy is a trader but also an economist, his thinking is not only focused on charts and Technical Analysis, which is also his most important work, but also wants to show a broader view of the markets.

He graduated in 1960 in liberal art but his interests are mainly economic and his attention to the financial markets led him to look for work on Wall Street, where he began to deal with the management of investment funds and financial portfolios at CIT Financial Corporation.

His passion and his abilities make it easy for him in the financial sector and in the early 1970s he joined Merrill Lynch, a very well-known investment bank.

In a short time he made his way within the institute and became director of the technical analysis department.

At the same time, John Murphy broadened his horizons in those years, moving from financial trading to teaching. He starts consulting and teaches at the New York Institute of Finance.

In the early 1980s he wrote one of his most successful books, still considered the foundation of modern technical analysis: “Technical analysis of financial markets. A comprehensive guide to trading methods and applications”.

This text definitively consecrates John Murphy as one of the most famous traders in history and elevates him to a talented economist, on a par with Jesse Livermore, John Paulson and Paul Tudor Jones.

Read More: Technical Analysis

Best online brokers

If your goal is to follow in John Murphy’s footsteps you need a reliable broker which will allow you to put into practice the teachings of this great trader.

A safe trading platform allows you to test any strategy in an optimal way and usually offers the possibility to operate in Demo too, without running any risk.

What matters is to use only regulated brokers with regular CONSOB or CySEC licenses.

Below we will show you the characteristics of what we believe are the best CFD brokers on the market.

What does CFD mean? These are the Contracts for Difference, derivatives that allow you to:

• Trade both up and down on any market
• Don’t pay trading fees

These intermediaries are perfect for trading online even starting from a few hundred euros, safely and without paying commissions.

Let’s see what the market leaders offer: eToro and ForexTB.

eToro

eToro needs no introduction, its fame precedes it and its over 10 million subscribers make it a highly reliable and safe intermediary.

Security is guaranteed by the numerous licenses available, including the CONSOB and CySec authorizations for the European market.

We propose this broker because in addition to providing one of the most intuitive trading platforms on the market, it offers the possibility to copy what the best traders in the world do.

Yes, you got it right, with this broker it is not necessary to know technical analysis and have studied John Murphy’s strategies because you can simply copy the market operations of the more experienced traders who trade on eToro.

This patented system is called Copy Trading and to activate it you just need:

• Register for free on eToro
• Choose the traders to copy, in the “copy people” menu.
• With a click, Copy Trading will copy the operations of the chosen traders into your account.

So you will get the same returns as these trading experts (in proportion to the investment), without doing anything. In practice, Copy Trading allows anyone to earn as a trading expert by copying their operations!

Here is what returns we are talking about, these are some real traders available on eToro:

Remember that eToro allows you to start from the free Demo account, a risk-free account where you can also test the famous Copy Trading!

ForexTB

If you are here to improve your online trading results, in addition to John Murphy’s books you will need a real Trading Course.

ForexTB is a top notch broker and has created what would become the most downloaded basic trading course in the world!

This is a truly complete ebook, which explains the technical analysis clearly, starting from real examples and avoiding technicalities.

This Trading Course is totally free and you can download it from the link below:

ForexTB is a safe broker, CySEC authorized and with two trading platforms, to practice and find the right software for your needs. You can choose between:

• The web platform, very simple and usable from any browser and device without downloading any software
• Metatrader 4, the most used trading software in the world, is very technical and full of customizable tools and indicators

If after the course you need operational indications to guide you in investments, ForexTB sends effective Trading Signals for free to all members.

These are indications developed by Trading Central and to receive them for free, just use the link below:

John Murphy: Technical Analysis of the Financial Markets

Now that you have the tools to deepen and test the strategies developed by John Murphy we need to go into more detail of his studies.

In addition to his most important work, which we will talk more about, Murphy also wrote:

• The visual investor
• Miracle minded manager

In addition to some more specific and less suitable books for a wide audience. But it is with Technical Analysis of the Financial Markets that his name becomes synonymous with “technical analysis”.

This text is the basis of some university exams in economics faculties and represents everything a trader needs to know before facing the financial markets.

Technical analysis of financial markets. A comprehensive guide to trading methods and applications, here is the full title.

After you have read the free Trading Course we have proposed, you will have the basics to be able to study John Murphy’s book, which we highly recommend if you are interested in a career as a trader or even just improve your trading results.

The study is often underestimated by novice traders, but the winning traders are all very well prepared, here are the best trading books we recommend you read.

In the next few paragraphs we will show you some of the trading rules and strategies that you will find in John Murphy’s book.

Follow the Trend

John Murphy’s first rule is a cornerstone of technical analysis: you have to follow the main trend.

The primary trend is fundamental and must be followed, going against the trend is always very risky and is a dangerous strategy.

The only exception concerns the shorter time frames that may show micro-trends opposite to the main trend, but are strategies suitable only for Day Trading or even Scalping trading.

Those who trade on short timeframes follow short-term fluctuations but still have to keep in mind that prices tend to return towards the primary trend.

Moving Average

Moving averages are the most important and most used trading indicators ever.

To clearly see the direction of a trend you need an indicator and the simple moving average is just the right tool for the purpose.

Its slope shows very clearly (usually) the direction of the main trend.

This indicator is adjustable and there are many types, such as exponential averages, but what matters most are the periods, that is, the measured time span, the period of time affected by the measurement.

Crossings of moving averages (a faster one with a slower one) often represent signals to enter or exit a trade.

Read more: Trading Indicators.

Minimum and Maximum of the Main Trend

The trend indicates the direction but in trading you also need supports and resistances in order to set the Stop Loss and any Take Profit.

The minimums and maximums are essential to understand the range within which the price moves.

Let’s take an example of an uptrend and analyze Supports and Resistances:

Support is a minimum below which a trend reversal is likely and is a very important level.

Resistance is a maximum reached by the price previously and if it is exceeded, it confirms the current trend.

For John Murphy it is essential to identify these levels even before entering the market.

The potential retracement

Among Murphy’s rules we also find a warning, the trend does not proceed steadily in one direction, retracements are not only possible but are probable and must be expected.

The potential retracement is a Drawdown (in bullish trends) that does not involve a trend reversal but only a change in the price, which then resumes the direction followed previously.

The retracement is a correction and can be measured in many ways, the most famous being the Fibonacci retracements.

Overbought and oversold

Oscillators are very particular indicators that allow you to analyze overbought and oversold.

For John Murphy, these are situations that identify excess buying or selling in a short period of time and often herald a retracement.

Among the oscillators that show the overbought or oversold phases we find the Stochastic, the RSI and the MACD.

These indicators are never used alone but need confirmation, which can be provided for example by another indicator, such as a moving average.

John Murphy: conclusions

Our John Murphy guide showed the characteristics that made this economist famous.

We must call him that because Murphy is not a simple trader, he is a scholar of technical analysis, an economist who has shown the value of charts and indicators in predicting price movements.

The books written by this trader represent milestones in technical analysis and we advise any investor to study them in depth.

John Murphy has summarized some basic rules for trading profitably and we have mentioned them in the paragraph relating to the most representative book of this economist: Technical analysis of financial markets.

In addition to advising you to read John Murphy’s books, we have proposed a Trading Course that will help you understand the texts of this expert trader and will provide you with the necessary tools to approach the world of financial investments.

To practice you will need a Demo account, so as not to take risks while testing the strategies learned in the course: