Granville’s Rules have four buy signals and four sell signals, which show the relationship between the position of the moving average (200-day MA) and the price. These signals are usually explained using conceptual charts, but candlestick charts should be used for a proper technical analysis.

This article introduces buy signal 2 and sell signal 6, which appear when the price moves against the moving average, falls below the MA (breaks out), and then returns to the trend.

Let's look at buy signal 2. First, we’ll introduce the features of the price movement after the signal appears.

Above, we can see the GBP/JPY candlestick chart, with buy signal 2 appearing four times. First, after signal A appears, the price moves up, but the action is not sustained. The trend falls to the same extent as the previous rise, returning to the MA level again. After signals B and D appear, the trend surges and rises significantly without immediate reversal or decline.

However, the price barely rises after signal C appears and falls below the MA; this is known as a false signal. In this example, we notice several patterns in the upward trends and periods.

Let’s look at sell signal 6 and the price movement after it appears.

Above, we can see the GBP/USD daily candlestick chart, with sell signal 6 appearing three times.

After signals E and F appear, the price moves down but then returns to the MA. A very different movement follows signal G. The price does not fully return to the MA after falling and then moves down again after consolidation. This example also shows various downward movements and periods.

Buy signal 2 and sell signal 6 indicate that a return to the original trend will follow a low or a rebound. Although the signal is expected to follow the original trend, it may last for some time. The price can return to the MA or become a standard false signal, which requires extra attention.

Let’s look at a simple trading strategy rule using buy signal 2: enter when the price crosses the MA upwards and close at the recent high.

Let's see what happens when trading with this rule at A, B, and C when buy signal 2 appears.

You close at a profit by continuously rising to the most recent high at A (around 800 pips). At B, the price movement reverses and slides to the recent low, where a stop-loss is triggered. However, even after the stop-loss, another opportunity may arise, so you must be prepared. Immediately after the stop loss at B, there is a buy signal 2 at C. The price rises sharply this time and successfully closes at a profit (around 650 pips).

Now, let’s look at the trading strategy of sell signal 6.

If this rule is followed when trading D and E with sell signal 6, both quickly fall to the recent low, resulting in a successful closing in profit (about 170 pips for D and 220 pips for E). This is an example of rebounding and selling in a downward trend.