Granville’s 8 Rules in Technical Analysis

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 A set of technical analysis guidelines developed by Joseph E. Granville and designed to help traders identify trends in the stock market and make informed trading decisions

Building strategies with Granville’s 8 rules

Joseph E Granville, the U.S. investment expert, observed the trends of both asset prices and MA, and summarised them into 8 situations, which later became Granville’s 8 rules that help investors to establish trading strategies.

What are Granville’s 8 Rules?

In general, Granville’s 8 Rules are a technical analysis indicator derived from MA, which has included four long and short signals as rule. The principle is to use the resistance and support from MA to find out the best entry position points for trend trading investments.

4 buying signals:

1. Breakout Buy – When the price rises from the bottom and breaks the MA of tendency level, it is a buying signal.
2. Call-back Buy – When the price goes beyond the MA and the call-back does not fall below the MA can be considered as a buying signal.
3. Fake Breakout Buy – The price falls below the MA, however, if the MA is still rising and the short-term price goes back upon the MA, it is a buying signal.
4. Off-buy – When the price keeps falling and accumulates certain declines, and it begins to deviate from the moving average, it is a buying signal.

4 selling signals:

1. Breakout Sell – When the price falls from above and breaks the MA of tendency level, it is a selling signal.
2. Bounce Sell – When the price goes below the MA and it rebounds but does not exceed the MA, it is a selling signal.
3. Fake Breakout Sell – The price rises and breaks the MA, however, the MA is still falling and the short-term price falls again below the MA, it is a selling signal.
4. Off-sell – When the price keeps rising and accumulates certain increases and starts deviating from the MA, it is a selling signal.

The figure below shows that after an upturn is formed, with the occurrence of the golden cross, it often fails to break the longer-term MA when the price drops. Therefore, investors can predict the upturn and thus be able to know the major trend keep on moving. The circled position in the figure is the key operating point predicted according to Granville’s 8 Rules. Such a trading indicator makes it easier for learners to grasp more opportunities for trading. The reliability of the entire trading strategy can be enhanced if together using the golden cross/death cross.

Granville’s 8 Rules – The Drawbacks

The cross-use of MA and Granville’s 8 Rules described above can be useful only in the cases where an obvious trend appears. However,  there are often frequent swings in forex trading. At this time, MA does not provide a good guiding effect if investors do not take any other approaches to estimate the market; it is easy for them to suffer from losses.

Range of oscillation: Novice should avoid trading