Granville’s 8 Rules for Moving Average (MA)

Granville’s 8 Rules for Moving Average (MA)

Introduction to Granville’s Rules

The previous slides of the [Moving Averages], have presumably provided everyone to have a preliminary understanding of the meaning and operation of the moving averages.
But for novice investors, if they only know to buy when the moving average rises and vice versa, it would pretty much be like betting on roulette with just fluke.
Therefore, the following slides will take the introduction of [Granville’s Rules] as an example to explain how to match the trend of the moving average to improve the accuracy.

• Published by American investment expert J.Granville.
• The rule is summed up by observing the movements of the U.S. NASDAQ index.
• Whom also proposed the well-known “Moving Average” indicator and “On-Balance Volume theory”
• The rule can be divided into “Bull Trend” and “Bear Trend” according to different stages

Granville’s 8 Rules (Bullish Trend)

There are a total of 4 Buying & Selling opportunities in the Bullish trend.

• That are presented with different numbers on the Left
• The same buying and selling opportunity may emerge many times in the market
  

1^st  –  Buying point (①):

• This is the end of the previous downtrend, and the blue moving average is flattening
• Buying momentum may aid prices to attempt breaking through the moving averages, but may also be pushed back
• Investors can attempt for Long position in a small proportion.
  

2^nd –  Buying point (②):

• The price was affected by the stop-loss selling pressure, and the price fluctuated downward
• However, after the market bottomed out, the selling pressure was exhausted, and the price rapidly rebounded to near the moving average.
• Investors can Buy Long orders on dips in batches.
  

3^rd –  Buying point (③):

• After the price stands on the moving average, it fluctuates upwards.
• Throughout the process, there will still be several pullbacks due to profit-taking behavior by some investors.
• However, as the buying is too strong, a long lower shadow can be seen on the candlestick chart during the rise.
• Investors can Buy Long orders on dips in batches.
  

4^th –  Selling point(④)：

• When the price cannot break the previous high(resistance) for more than once, it represents the rally is exhausted
• A trend reversal is confirmed when the price officially breaks through the moving averages
• Investors can take-profits on rallies
  

Granville’s 8 Rules (Bearish Trend)

There are a total of 4 Buying & Selling opportunities in the Bearish trend(as shown in the figure).

• That are presented with different numbers on the Left
• The same buying and selling opportunity may emerge many times in the market
  

5^th –  Entry Point(⑤)：

• A Bearish pattern is established when the price dips below the moving averages
• Investors can take-profits on rallies or take advantage of the trend to go Short.
  

6^th –  Buying Point(⑥)：

• When the initiation of the trend reversal occurred, that would oftenly reach the short-term support for most of the time.
• Investors then can consider to conduct marginal & short-term Long position.
  

7^th –  Selling Point(⑦)：

• In the process of falling prices, there may be a brief breakout of the moving average
• However, due to the trend remains in Bear, it would continue to decline after the breakout
• Investors should take profits on rallies or to go short along the trend.
  

8^th –  Selling Point(⑧)：

• In the process of falling, the price rebounds
• But the uptrend reversed and fell after unable to break the barrier produced by the moving average.
• Investors could consider going Short position along the trend.
  

Precautions for Applying Granville’s Rules

• From the above cases, it can be seen that if the entry & exit were only depending on the breakthrough on either side of the moving averages as the basis, it will easily lead to losses.
• It is still necessary to observe the trend of the moving averages during operation to improve the accuracy
• The following will sort out the operation methods and precautions for readers in different situations.

Applying the Granville’s Rules for Operations

• It is crucial to select a “Moving Average” suitable for the period as a criterion
• The moving averages suitable for different commodities are different, and it takes time to compare and verify
• Generally speaking, the longer the MA is, the stronger the support or pressure would be.
• Investors can use other technical indicators to improve trading odds.
  

Risk Reminder

• The market will still be affected by market news most of the time, and will not rise and fall completely according to the established pattern.
• The most important thing in investing is to set take profit and stop loss before entering the market
• Once it crosses the stop loss level, you must keep your promise to exit and break even

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