Unlocking Profitable Trades: A Guide to Granville’s Rules and Signals. Technical analysis, market trends, and proven investment strategies
What are Granville’s Rules?
Granville’s Rules were created by Joseph Granville, a renowned volume and price chart analyst in the United States. This method takes advantage of the relationship between prices and moving averages as the basis for buying and selling signals and is a well-known investment strategy.
Granville’s Rules state that stock prices fluctuate in a certain way, and the moving average (MA) represents the direction of the trend, so when the price deviates from the trend (that is, from the MA), it will be corrected in the future direction of the trend. Therefore, when a deviation occurs, a significant buy or sell signal is triggered.
Granville’s Rules use the changes between stock prices and moving averages, including the way they interact with each other, how stock prices break through the MAs, and the scope of their deviations, to propose eight different scenarios. These scenarios are the basis for entering and exiting the market:
Red line: moving average Black line: stock price movement
Granville's Buy Signal
Granville's Sell Signal
The four key points of Granville’s Rules
- Traders should stay short when the MA is rising and not go long when the MA is falling.
- The MA can act as support or resistance and experiment with upswings and downswings, creating a trend line for long- and short-term trading.
- Long and short positions in stock prices follow the stock price trend. Once the long/short position is reversed, action is required in the opposite direction.
- The moving average’s golden cross and death cross intersect with past stock price values. Once the intersection occurs, it will lead to an upward or downward trend, offering opportunities to react to the trend.
The four limitations of Granville’s Rules
- As Granville’s Rules rely heavily on moving averages, there is a time gap in the occurrence of signals.
- When stock prices move sideways, they will generate false signals.
- When choosing a MA with a shorter duration, such as a 5-day MA or a 10-day MA, there will be a smaller time gap but more false signals.
- When choosing a MA with a longer duration, such as a 120-day MA or 200-day MA, the resulting signal will be more effective, but there will be a time gap. For example, the stock price moves up or down shortly before the buy/sell signal appears.
As mentioned above, Granville’s Rules rely heavily on moving averages, the most frequently used tool in FX technical analysis. Here's how the rules apply to FX trading:
Trading with Granville’s Rules
Granville's - buying opportunity on upswing
Above, we have the daily CAD/JPY candle chart. The orange line is the 200-day MA. In the rising pattern above, investors are trading based on Granville’s Rules, buying at ①②③ and selling at ⑧.
OANDA Granville's- selling opportunities in downswing
Above, we have the daily NZD/JPY candle chart. The orange line is the 200-day MA. In this falling pattern, investors are trading based on Granville’s Rules, selling at ⑤⑥⑦ and buying at ④.
Details of Granville's Rules
OANDA Granville's- examples
Hopefully, you now have a better understanding of Granville’s Rules. As this method relies heavily on moving averages, it can be used with stocks, FX, gold, oil, and other instruments. There are many investment opportunities and instruments available out there, and global investors favor CFDs because of their variety, flexibility, and the ability to invest with a small amount of funds.
