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- Joe Granville
Joseph E. Granville (1923 – 2013), commonly known as Joe Granville, was a highly influential, though often controversial, American stock trader, market analyst, and author. He developed a unique, highly active, and often contrarian approach to technical analysis, centered around the concept of identifying and exploiting 'power surges' in the market. While he achieved significant success, his methods were also characterized by high risk, and his later career was marked by legal troubles and a decline in reputation. This article provides a comprehensive overview of his life, trading philosophy, key techniques, and legacy.
== Early Life and Career
Born in 1923, Granville’s early life was marked by financial hardship. He began his career in the financial markets in the 1940s, initially working as a runner on the New York Stock Exchange. This provided him with a firsthand understanding of market mechanics and the behavior of traders. He quickly became fascinated with charting and technical analysis, dedicating himself to studying market patterns and developing his own trading system. He served in the US Navy during World War II, which further instilled discipline and a strategic mindset.
Granville initially worked for a brokerage firm, but his independent and often unconventional views clashed with the firm’s more traditional approach. He eventually struck out on his own, establishing a newsletter and investment advisory service in the 1950s. This allowed him to disseminate his ideas directly to a growing audience of individual investors. His initial success stemmed from accurately predicting several market turns, including the 1962 stock market correction, which significantly boosted his credibility.
== Granville's Trading Philosophy
Granville’s philosophy was fundamentally based on the belief that the market is always right and that attempting to predict future price movements based on fundamental analysis alone was inherently flawed. He vehemently rejected traditional economic forecasting and instead focused exclusively on price and volume. He viewed the market as a dynamic, constantly evolving entity driven by the collective psychology of investors, and believed that this psychology was best reflected in the price action.
He was a staunch advocate of active trading and believed that investors should constantly monitor the market and be prepared to adjust their positions quickly. He discouraged the ‘buy and hold’ strategy, arguing that it was too passive and exposed investors to unnecessary risk. He believed in cutting losses quickly and letting profits run, a core tenet of sound risk management.
Granville’s approach was deeply rooted in contrarianism. He actively sought out opportunities to trade against the prevailing market sentiment, believing that the majority of investors were often wrong. He famously said, "The public is always wrong." This meant buying when others were selling and selling when others were buying.
He also emphasized the importance of market timing. He believed that identifying the precise moment to enter or exit a trade was crucial for success. His techniques were designed to pinpoint these critical junctures.
== Key Granville Techniques
Granville developed a suite of techniques that were designed to identify potential trading opportunities. Here are some of the most prominent:
- **Granville’s On-Balance Volume (OBV):** Perhaps his most famous contribution, On-Balance Volume (OBV) is a momentum indicator that relates price and volume. It attempts to measure buying and selling pressure by adding volume on up days and subtracting volume on down days. Granville believed that OBV could often anticipate price movements, providing valuable clues about the strength of a trend. Divergence between OBV and price was a key signal, indicating a potential trend reversal. He considered OBV a leading indicator, unlike many others.
- **Granville’s Relative Strength (RS):** This technique involves comparing the performance of a stock to a market index, such as the S&P 500. Granville sought stocks that were demonstrating relative strength – that is, outperforming the broader market. He believed that these stocks were more likely to continue to rise. This is similar to Relative Strength Index but focuses on comparing assets rather than absolute values.
- **Granville’s Moving Averages:** Granville used moving averages, particularly the 25-day moving average, as a tool for identifying trends and support/resistance levels. He favored shorter-term moving averages to react quickly to market changes. Exponential Moving Average (EMA) was also used for faster signal generation.
- **Granville’s Stochastics:** While not the originator of Stochastic Oscillator, Granville extensively used and popularized it. He combined it with other indicators to confirm trading signals.
- **Granville’s Volume Spread Analysis (VSA):** This technique, though Granville didn’t explicitly name it VSA, shares strong similarities. He analyzed the relationship between price spread (the difference between the high and low of a bar) and volume to identify potential supply and demand imbalances. He looked for ‘effort’ (high volume) versus ‘result’ (price movement) to gauge the strength of a trend. Volume Spread Analysis is now a widely recognized technique.
- **Granville’s Key Reversal Days:** Granville identified specific price and volume patterns that he believed signaled potential trend reversals. These included days with wide price spreads and high volume, particularly when occurring after a prolonged trend. These are precursors to modern Candlestick Patterns.
- **Granville’s Demand and Supply Lines:** He emphasized drawing lines on charts to identify potential support and resistance levels based on past price action. Breaks through these lines were considered significant signals. Support and Resistance are fundamental concepts in technical analysis.
- **Granville’s “Power Surges”:** His core concept was identifying periods of intense buying or selling pressure, which he termed “power surges.” These surges were characterized by significant price movements accompanied by unusually high volume. He believed that these surges represented the best opportunities for profit. Breakouts often accompanied these power surges.
== Granville's Market Letters and Publications
Granville was a prolific writer and publisher. His market letters, particularly *Granville’s Market Letter*, gained a large following among individual investors. He presented his ideas in a clear and concise manner, often employing colorful language and provocative statements. His writing style was direct and uncompromising, which appealed to many but also attracted criticism.
His major publications include:
- A New Approach to Investing in Stocks and Bonds (1963): This book laid out the foundation of his trading philosophy and techniques.
- Granville’s New York Model Market: A Novel Approach to Analyzing Individual Stocks (1972): This book provided a more detailed explanation of his specific trading rules and strategies.
- Granville’s Top Notch Stocks: How to Identify and Profit from High Growth Companies (1975): Focused on stock selection methods.
These books remain influential among technical analysts and continue to be studied by traders today. They offer a unique perspective on market behavior and provide valuable insights into the mind of a highly successful, albeit unconventional, trader.
== Controversies and Decline
Despite his early success, Granville’s later career was marred by controversy. In the 1970s, he was investigated by the Securities and Exchange Commission (SEC) for allegedly manipulating stock prices. He was accused of engaging in ‘wash sales’ – buying and selling the same stock to create the illusion of trading activity.
In 1979, Granville was found guilty of fraud and conspiracy. He was sentenced to five years in prison and fined $1 million. This conviction severely damaged his reputation and led to a decline in the popularity of his market letters. He maintained his innocence throughout the legal proceedings, arguing that he was being unfairly targeted by the government.
After his release from prison, Granville attempted to revive his investment advisory service, but he never regained the level of influence he once enjoyed. He continued to trade and publish his views on the market, but his predictions were less accurate and his following dwindled.
== Legacy and Influence
Despite the controversies that surrounded his later life, Joe Granville left a lasting legacy on the world of technical analysis. His emphasis on price and volume, his contrarian approach, and his development of innovative indicators like OBV have profoundly influenced generations of traders.
His techniques are still widely used today, and his books continue to be studied by those seeking to understand market dynamics. He pioneered the concept of active trading and the importance of risk management, ideas that are now central to modern trading strategies.
Granville’s work challenged conventional wisdom and encouraged investors to think for themselves. He was a true original, a maverick who dared to question the status quo. His influence can be seen in the work of many successful traders and analysts, including Paul Tudor Jones and Linda Raschke. He helped to democratize technical analysis, making it accessible to individual investors. His emphasis on independent thinking and contrarianism remains highly relevant in today’s complex and volatile markets. The study of Elliott Wave Theory and Fibonacci retracements also owe some conceptual debt to his focus on pattern recognition.
Even modern algorithmic trading systems often incorporate elements of Granville’s principles, particularly volume analysis and momentum indicators. The rise of Quantitative Trading has ironically validated some of his core beliefs about the importance of data-driven analysis. His work also foreshadowed the development of High-Frequency Trading and the increasing focus on speed and precision in the markets. The principles of Wyckoff Method also resonate with some of Granville's strategies.
== Further Reading and Resources
- Granville, Joseph E. *A New Approach to Investing in Stocks and Bonds*. John Wiley & Sons, 1963.
- Granville, Joseph E. *Granville’s New York Model Market*. Doubleday, 1972.
- Granville, Joseph E. *Granville’s Top Notch Stocks*. New American Library, 1975.
- [Investopedia - On Balance Volume](https://www.investopedia.com/terms/o/onbalancevolume.asp)
- [StockCharts.com - Joe Granville](https://stockcharts.com/education/articles/joe-granville-the-man-and-his-methods.html)
- [TradingView - On Balance Volume](https://www.tradingview.com/indicators/OBV)
- [Babypips.com - Technical Analysis](https://www.babypips.com/learn-forex/technical-analysis)
- [Corporate Finance Institute - Technical Analysis](https://corporatefinanceinstitute.com/resources/knowledge/trading-investing/technical-analysis/)
- [The Pattern Site - Candlestick Patterns](https://thepatternsite.com/)
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- [Investopedia - Technical Indicators](https://www.investopedia.com/technical-analysis/technical-indicators.asp)
- [TradingView - Indicators](https://www.tradingview.com/indicators/)
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- [Forex Factory - Technical Analysis](https://www.forexfactory.com/technical-analysis)
- [BabyPips - Forex Trading](https://www.babypips.com/)
- [Investopedia - Forex Trading](https://www.investopedia.com/forex/)
- [DailyFX - Forex News](https://www.dailyfx.com/forex-news)
- [TradingView - Forex Charts](https://www.tradingview.com/markets/forex/)
Technical Analysis On-Balance Volume Moving Average Stochastic Oscillator Volume Spread Analysis Support and Resistance Candlestick Patterns Market Timing Contrarian Investing Risk Management
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