Holy Grail Trade

The Holy Grail Trade

 Originally developed by Linda Bradford

Raschke of LBR Group
 This is a great systematic approach to
following a trend
 It is a clever combination of:
 Trend

 Reaction

 Pattern

 Risk
The Holy Grail Trade

 It is likely that when a price hits a new

momentum high and pulls back, it will soon
retest the recent high
 Therefore any pullback from a recent
momentum high should be bought
 … but most people hesitate to buy pullbacks
because they fear a top may be in place
 With this pattern the odds of a top being in
place is probably only around 10%
Holy Grail Set-up

 Sell signal set-up:

1. We need to be in a strong short-term downtrend
2. 14-period ADX > 30
3. Look for a “slow & corrective” retracement to the
20-period exponential moving average
4. This must be accompanied by a downturn in ADX

NOTE: This “slow & corrective” retracement is important - You

don’t want to see an impulsive pull-back, rather a price
pattern like a rising wedge, triangle or flag
Holy Grail Set-Up

20 EMA

Downtrend
Slow & corrective retracement
(Rising Wedge, or flag?)
ADX > 30% but decreasing

30%
Holy Grail Set-up/Trigger

5. The price retraces to touch the 20 Exponential

Moving Average
6. There are two choices of trigger:
a. Sell the breakout below a price pattern (if applicable)
b. Put a sell order a few pips below the 2-event low
(i.e. the lowest low of the candle that touched the 20 EMA and the
previous candle)

Don’t forget to use a time or price filter to ensure a reliable

breakout
Holy Grail Set-up/Trigger

Price reaches 20 EMA

Sell order below 2-event low

Downtrend or
Sell the breakout below the
Rising Wedge (maybe a flag)

30%
Holy Grail Trade Management

7. Once you’ve sold the breakout below the 2-event

low, you need to set you stop loss and targets
8. STOP LOSS: A few pips above the recent reaction
high (with an aggressive trailing stop just above the
2-event high)
9. TARGET 1: At (or a few pips above) the previous
downtrend low
10. TARGET 2: You could use a Fibonacci Extension to
project the previous downtrend from the recent
reaction high towards a more ambitious target
The Holy Grail Trade

Stop Loss
Downtrend
Sell order executed

Target 1

Target 2

30%
The Holy Grail Trade

Target 1 hit
…or you may choose to run
the trade with a trailing stop

30%
Holy Grail Trade Closed

Trailing stop hit

ADX > 30% but decreasing

30%
Another Holy Grail Set-up

Price reaches 20 EMA

Potential Rising Wedge, but

maybe a Double Bottom Sell order below
2-event low
ADX > 30% but decreasing

30%
Holy Grail Set-up

 Another potential sell signal set-up:

 Place a sell order a few pips below the 2-event
low
 Initial STOP LOSS: A few pips above the recent
retracement high
 Target 1: At (or a few pips above) the recent
low…
 But this target is not far from the potential entry level,
giving poor initial RRR for this set-up
The Holy Grail Trade

Stop Loss
Sell Order
Target 1

30%
The Holy Grail Trade

Set-up fails, so
nothing done

30%
Holy Grail Buy Set-up

 Now EUR looks to be going higher, so we’re

looking for a buy signal:
1. 14-period ADX > 30
2. Retracement to the 20-period exponential
moving average
3. Accompanied by a downturn in the ADX
4. When the price reaches the 20 EMA, put a buy
order above the 2-event high
5. Once long, set a sell stop below the new 2-event
low (maybe trailing stop below the 2-event low)
The Holy Grail Trade

Maybe a Bullish Flag

Buy order
above 2-bar
high

Price reaches
20 EMA

ADX > 30% but decreasing

30%
The Holy Grail Trade

Target 1

Buy

Stop Loss

30%
The Holy Grail Trade

Trailing stop hit on the

break below 2-bar low

Target 1 hit

30%
Holy Grail Trade Summary

 Always trade in the direction of the more aggressive

trend
 Set up your rules and wait for the trigger to enter
new positions
 You’ll know fairly quickly if you’re wrong, so you can
exit with a tight stop loss
 i.e. The price breaks above the recent reaction high (in a
downtrend) or below the recent reaction low (in an uptrend)
 This set-up is reasonably common and reliable
 Don’t worry about missing a trade - another opportunity
should arrive soon