Granville's Rules outline eight key trading signals—four buy-side and four sell-side—based on the relationship between price and the 200-day moving average (MA). These signals are widely used in technical analysis to identify trend reversals or momentum shifts. While they are often illustrated with conceptual charts, applying them to real-world data and actual charts is crucial for practical analysis.

This article focuses on Potential Buy Signal 1 and Potential Sell Signal 5, which occur at pivotal turning points, signaling the start of a new trend:

• Potential Buy Signal 1: This signal is triggered when the price moves above the 200-day MA after remaining below it for an extended period. It suggests the beginning of an upward trend, marking a potential buying opportunity.
• Potential Sell Signal 5: Conversely, this signal occurs when the price drops below the 200-day MA after staying above it for some time. It signals the possible start of a downward trend, presenting a potential selling opportunity.

Both signals are critical because they highlight a shift in market momentum. While conceptual charts are useful for understanding these rules, incorporating real-life chart examples is essential to capture the complexities of market conditions, such as volatility and support/resistance levels.

By combining Granville's Rules with actual market data, traders can make more informed decisions and improve the reliability of their technical analysis.

As an example, we will use the daily candlestick chart of the EUR/USD between March 2018 and September 2021 to illustrate the status of these signals and analyze the trend, the price range, and the period duration after the signals appear.

We employ potential buy signal 1 and potential sell signal 5 to assess trend initiation, aiming to identify significant price differentials. However, instances may arise where the trend reverts to the moving average post-signal or false signals occur amid ambiguous market fluctuations and a lack of clear direction, necessitating thorough comprehension.

When trading on a daily candlestick chart, caution is needed for ultra-long-term trades held for several years. Daily candlestick signals are best suited for short- to medium-term strategies, and their relevance can diminish over extended timeframes. For long-term positions, weekly or monthly charts are more reliable tools.

Additionally, long-term trades can lead to funds being tied up for prolonged periods, limiting their availability for other uses. This situation, sometimes referred to as a "deposit lock-up," occurs because the capital or margin allocated to an open position remains inaccessible until the trade is closed.

For shorter-term strategies, traders can consider using 4-hour charts for swing trading or 60-minute charts for day trading. These timeframes provide detailed insights into price trends and allow traders to align with market movements more effectively.

The effectiveness of potential buy signal 1 and potential sell signal 5 as a trading strategy varies based on market conditions but can serve as a strategy to help traders identify opportunities based on price differences. However, it is also important to note that relying solely on signals could be subject to error, time gap, false signals or changes in market conditions. Additionally, while the idea of avoiding profit-taking during the initial period is presented, it's crucial to recognize that market dynamics can shift, and prudent risk management may involve securing profits at opportune times rather than relying on prolonged price gaps.

Above, we see an example of using the EUR/USD daily chart to trade according to the rules above. Entering at potential buy signal 1 (March 2006) and selling at potential sell signal 5 (August 2008) results in a profit from the price gap of about 2800 pips.

Next, we will examine potential sell signal 5 and the price movement following that signal.

Above, we see an example of using the USD/JPY daily candlestick chart to trade according to the above rules. Entering at potential sell signal 5 (July 2007) and closing at potential buy signal 1 (February 2012) results in a profit from the price gap of about 3900 pips.