holy grail trading strategy

Learn the Holy Grail trading strategy and you'll be on your way to finding winning trading positions. The objective of the Holy Grail stock trading strategy is to help you discover how you can take a simple trading setup and make consistent profits. We’re also going to discuss how, contrary to what some sources might claim, there is no Holy Grail in trading.

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When it comes to trading, most traders focus on the potential profits as the primary metric. There’s nothing wrong with wanting to make money. However, professional traders have a different mindset as they focus more on managing the capital they already have. If your goal is to double your wealth overnight, you won't be in the trading game for very long.

One group of traders focuses on the Holy Grail, while the other group of traders focuses more on managing risk. At the end of the day, you won't be profitable by constantly focusing on your PnL. Both profits and losses need to be effectively managed. You’re going to become a profitable trader by focusing on the trading process and the markets.

Let's take a look at the truth about the Holy Grail system and we'll also outline the trading rules of Linda Raschke's Holy Grail setup.

Is there a "Holy Grail" in Trading?

holy grail stock trading

There is no Holy Grail in trading.

Trading is a skill that can be learned, but there is no magic button that can guarantee riches.

Naturally, you're probably now wondering: What is the Holy Grail trading strategy?

The Holy Grail stock trading system is a system that always produces profitable trades regardless of the market environment or asset class traded. It is a theoretical concept that--though it doesn't exist in practice--can help you design a more profitable trading strategy to call your own.

No matter how much you tweak the entry rules or no matter the combination of indicators you use, you’re not going to find the Holy Grail. Trading is inherently risky. However, risk can be still be effectively managed.

Some traders might rightfully point out that arbitrage in trading can result in risk-free positions. However, arbitrage is not something that the lay day trader should design their strategy in pursuit of. Unless, you have the algorithm behind the High-frequency trading firm Virtu Financial Inc., which only had one losing day in 5 years: Virtu Celebrates another Year without a Single Day of Losses.

Moving forward, our team of experts will outline 3 reasons why there is a higher probability to find life on Mars than to find the Holy Grail trading strategy.

3 Reasons Why There is no Holy Grail Trading Strategy

holy grail trading strategy review

In the trading world, there is no one size fits all approach.

For Example:

A trend-following strategy will do poorly when the market is ranging.

Secondly, the markets are constantly changing.

“The markets are the same now as they were five to ten years ago because they keep changing – just like they did then.” – trading quote from Market Wizard Ed Seykota.

The price action is like the ebb and flow of the ocean. It is constantly changing both in intensity and duration.

Third, there is no magical formula for trading because no one can prepare for all market scenarios. The efficient market hypothesis is wrong because if the market were efficient indeed, there is no way to make a profit.

These three reasons clearly demonstrate why there is no Holy Grail in trading.

Even price action trading strategies carry their own share of risks.

Price Action is Not the Holy Grail Stock Trading

holy grail trading

Don’t get me wrong, mastering price action trading strategies can be extremely useful.

However, the price is full of noise, and cutting through the noise can be extremely difficult.

We’re not saying you can’t trade on the price action alone.

Quite contrary.

Our team of experts at TSG has developed and used with a lot of success pure price action trading strategies. You can check out more here: Chart Pattern Trading Strategy Step-by-Step Guide.

We hope we busted another myth that is so widely spread in the trading community.

We’re going to demonstrate how one simple trading pattern can be used as the Holy Grail trading strategy.

Holy Grail Trading Strategy

First, the name “Holy Grail trading strategy” was given by Market Wizard Linda Raschke.

This is a very simple trade setup that works with any instrument (stocks, forex, commodities, cryptocurrency, etc.). And, just to prove to you that you can find an edge outside of the price action trading strategies, the Holy Grail trading system uses two technical indicators.

First, let’s lay down the trading tools we need for the Holy Grail trading strategy:

  • Average Directional Index ADX
  • A 20-period exponential moving average (EMA)

See the stock chart below:

The ADX indicator is a technical indicator used to gauge the strength of a trend. In theory, the stronger the trend is the higher the ADX reading will be. So, the ADX is a non-directional indicator or a strong trend indicator.

Here is how the ADX works:

  • If the ADX is moving higher and higher and at the same time the price is moving upwards, then it signals a strong bullish trend.
  • On the other hand, if the ADX is moving higher and higher and at the same time the price is moving downward, then it signals a strong bearish trend.

See the ADX chart below:

holy grail trading system

If you want to learn all the ins and outs of the ADX indicator and an exclusive strategy based only on the trend strength indicators please see: Best ADX Strategy Built by Professional Traders.

The Holy Grail trading system is designed to capture the first retracement after a strong trend (upwards or downwards) was established. As a general rule, the first pullback in a bullish or bearish trend is the most profitable trade setup.

Market Wizard Linda Raschke noted that the Holy Grail trading setup offers a low-risk entry point. Secondly, the outcome of this trading setup is very predictable, in the sense that the two following possible trading scenarios have the highest probability to happen:

  • A retest of the previous swing high (low). The profit margins in this scenario depend on how far the pullback has gone.
  • Secondly, the prevailing trend resumes and a new continuation leg to the upside (downside) begins.

Even the supposedly “Holy Grail system” has some trading rules.

So, next, we’re going to outline the Holy Grail trading rules (for buy signals).

Step #1: 14-Period ADX must be above 30 Level and Continue Rising

The first criterion deals with measuring the trend strength.

An ADX reading above the 30 levels is enough to signal that a strong trend is underway. If we wait too long and the ADX reaches higher reading, the trend may be overextended and we might be late to the party.

The ADX reading above 30 is a good way to formulate the presence of a strong trend and filter weak versus strong trends.

See the Tesla stock chart below:

holy grail stock trading

The second trading rules seek to frame the retracement in price (pullback). Learn more about forex pullback indicator strategies here.

Step #2: Look for a Retracement in Price to Tag the 20-period EMA

The second Holy Grail trading rule deals with price action.

We wait for the first retracement to the 20-period EMA. Keep in mind; we want to monitor the first retracement to the exponential moving average, not the second or the third.

It makes sense for the ADX to follow the lead of the price action and turn down. So, don’t be scared when the ADX is heading south during the pullback. However, if the ADX moves below the 30 levels during the retracement, that’s a red flag.

holy grail of trading

The ADX must hold above the 30 levels to confirm that the prevailing trend is strong enough to sustain its momentum.

Step #3: Buy once we break above the Candlestick High that tagged the 20 EMA

As an entry trigger point, we’re going to use the first’s candle high that touches the 20-period EMA. A break of that candle high will trigger our buy order.

Learn how to master candlestick trading in our best candlestick PDF guide.

We’re systematizing everything with our trading approach. There is no room for interpretation here. It’s better to have a systematic foundation of your strategy than to add discretionary elements to it. The first trading advantage that comes with this approach is that you can better quantify the risk.

forex holy grail secret pattern

Keep in mind that we must hold above the 20-period EMA in order for the Holy Grail signal to remain valid.

Let’s define our stop loss and take profit strategy.


Step #4: Place SL below the Retracement Low, Trail SL to Lock In Profits

The protective stop loss is hidden below the newly formed swing low. In other words, you place the SL below the swing low left behind by the pullback.

Secondly, the take profit strategy has two approaches:

  • First, trail the stop loss below the 20-period EMA and ride the trend.
  • Secondly, you can look to take profits at the most recent swing high.

forex the holy grail pdf

Please note that when we have shallow pullbacks (like in the above example), it’s best to simply trail the stop loss to lock in profits.

Note* subsequent trades can be taken on the 20-period EMA as long as the ADX remains above the 30 levels and all other rules are respected.

The Holy Grail sell signals work the same but in reverse.

Here is a chart example:

holy grail meaning

The Holy Grail trading strategy helps you quantify the risk within an already established trend. Using it along with the ADX indicator, we have a nice trading system with systematic entries. Quantifying--and managing--risk is one of the most important things a trader can do.

Final Words – Holy Grail Trading System

The truth is that there is no Holy Grail stock trading method. All trades carry at least some degree of risk. Simple and robust ideas along with proper risk management are the Holy Grail of trading. Once you add in the trading compound effect of multiplying your profits you can gain a different perspective of what trading is all about.

Profitable trading is all about your mindset, your ability to access information, and your ability to stick to your fundamental trading principles. Of course, you need an edge, but without the right mindset, even the most profitable trading strategy can lose you money.

So, here is a small recap of the Holy Grail trading strategy:

  • Use the ADX to gauge the strength of the trend.
  • Buy the first retracement of the newly emerged trend.
  • Use price action and the 20-period EMA to time your entries.
  • Trail your stop loss to lock in profits.

Thank you for reading!

Feel free to leave any comments below, we do read them all and will respond.

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Check out Tim Black's teaching below on the Holy Grail Trading Strategy!

With over 50+ years of combined trading experience, Trading Strategy Guides offers trading guides and resources to educate traders in all walks of life and motivations. We specialize in teaching traders of all skill levels how to trade stocks, options, forex, cryptocurrencies, commodities, and more. We provide content for over 100,000+ active followers and over 2,500+ members. Our mission is to address the lack of good information for market traders and to simplify trading education by giving readers a detailed plan with step-by-step rules to follow.