Granville’s Rules Trading: Buy Signal 4 and Sell Signal 8 Explained

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 actual candlestick charts, like the ones used in technical analysis, must be used here. This article introduces buy signal 4 and sell signal 8 for trading at a level that deviates significantly from the moving average.

Let’s analyze buy signal 4. First, we’ll show the price movement after the signal appears.

Above, we see the EUR/JPY daily candlestick chart, with buy signal 4 appearing twice. After signal A appeared, the price returned to the MA but it reversed and declined midway. After that, it moved upward again and finally returned to the moving average. However, after signal B appeared, the price rose to the MA, broke through, and continued to move upwards. As a result, the downtrend shifted to a strong uptrend.

One feature of this price movement is that when a trend is ongoing, it may change near the end of the trend. Let’s look at sell signal 8 and the price movement after sell signal 8 appears.

Above, we see the EUR/USD daily candlestick chart, with sell signal 8 appearing twice. After signal C appeared, the price returned to the moving average several times, but instead of falling all the way, it returned to the uptrend, and the deviation increased again. In contrast, signal D was immediately followed by a downtrend, towards the moving average. This was like the situation after signal C appeared, where the price did not return to the MA and the price deviation increased further, requiring extra attention.

Buy signal 4 and sell signal 8 are trading signals that the price returns to the MA after deviating significantly away from it. Such trades are contrary to the general trend, so it is difficult to determine when to enter the market.

In addition, after the signal appears, the trend usually does not return to the moving average and is likely to return to the original trend. If you trade with buy signal 4 and sell signal 8, you should manage your intraday trading cautiously.

Here are some trading strategies to use with buy signal 4. Without any indicators, you must rely on your judgment. Therefore, the OANDA_Multi_MA_Deviation indicator is used here. The average candle is used to determine the entry point. It must be noted that a significant deviation from the MA means that the trend is strong and likely to continue. You should place a stop-loss limit order and strictly observe intraday trading rules.

When trading at A and B, where buy signal 4 appears, both on the decline and rise, you make a profit (about 60 pips for A and about 200 pips for B). In this example, you profit more from a strong rally of B, where the deviation is more significant.

Now, let’s analyze the trading strategy of sell signal 8.

What is the result of using this rule to trade at the C and D of sell signal 8? Despite the peak, the decline is slighted at C, with a profit of about 35 pips. After entering at D, the trend immediately starts to decline, with a profit of about 20 pips. However, when using this strategy, if the trend continues to peak, you can consider selling again when the red line turns blue next time.