Trading Strategy - The Holy Grail Trading Setup

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Trading Strategy - The Holy Grail Trading Setup http://www.financial-spread-betting.c... PLEASE LIKE AND SHARE THIS VIDEO SO WE CAN DO MORE! In this video, we review the famous "Holy Grail Setup" used by market wizard, Linda Bradford Raschke featured in Jack Schwager’s book, The New Market Wizards.. It aims to catch retracements on strong trends.

The “Holy Grail” setup was developed by Linda Bradford Raschke and Larry Connors who named it so for its simplicity. The trading strategy is designed to catch corrections in markets that have shown evidence of increased momentum, with the average directional movement index (ADX) and a 20-day exponential moving average (EMA) providing the setup.

This trading strategy or pattern utilises Welles Wilder's ADX (Average Directional Index), which basically takes into account the strength of a trend over a set period of time. The ADX will read higher for stronger trends. This pattern takes into account that the chances are high that when a stock reaches a new momentum high and pulls back, it will likely retest the recent high. As such any
pullback from a new momentum high can be bought because a top may be in place. With this strategy, chances that a top has been reaches is likely only 5% to 10%. If you check for individual shares that have rises in the last months you'll see that a number of them have had Holy Grail patterns.

With the Holy Grail pattern, we want the stock to fall back to a 20 day moving average after its ADX indicator has moved to a value above 30

Holy Grail Pattern Buy rules (sells are reversed)
1. The 14-period ADX must initially be greater than 30 and rising.
2. Look for a retracement in price to the 20 period exponential moving average. This will usually be accompanied by a turndown in the ADX.
3) When the price touches the 20 period moving average, put a buy stop above the high of the previous bar.
4) Once filled, enter a protective sell stop at the newly formed swing low. Trail stops as profits grow.


The indicators you need for this strategy are:

3-10 oscillator. It is the difference between a 3-day simple moving average and a 10-day simple moving average. Plus, there’s a second line which is a 16-period simple moving average of the 3-10 line. You can simply alter the settings for an MACD (moving average convergence-divergence indicator), changing the moving average type from exponential to simple and the moving average lengths to 3, 10 and 16. For forex traders, we provide the MACD-SMA indicator here.

14-period ADX (average directional movement index). This indicator is used to gauge trend strength.

20-period Exponential Moving Average


Her rules for going long are as follows:

1. Wait for the ADX to rise above 30

2. Buy the first retracement to the 20-period EMA

3. Look to exit on the push to new highs

The best setups also have confirming factors such as the 3-10 oscillator making new momentum highs.

Her rules for going short are as follows:

1. Wait for the ADX to rise above 30

2. Buy the first retracement to the 20-period EMA

3. Look to exit on the push to new lows

The best setups also have confirming factors such as the 3-10 oscillator making new momentum lows.

This strategy is definitely interesting to us. With the clear take profit level of the last high/low respectively if you buy/sell, you can consider setting a stop loss level of the same absolute magnitude, for a 1:1 reward to risk ratio. With such a reward to risk ratio, you will require a higher win ratio. Let us know how this system works for you, especially if you know of any ways to increase the win ratio.