How To Trade The "Holy Grail" Setup

Hey folks,

Long time ART OF TRADING blog followers probably know this "Holy Grail" setup well as I made numerous posts on it thru out the 9 years I've been posting on this blog!!  Can't believe its been 9 years ALREADY !!

Anyway, let's get straight to it!

The "HOLY GRAIL" setup, is a setup first mentioned by Linda Raschke in her famous trading book, "STREET SMARTS"....

The basic premise of this trading technique is that strongly trending(in this case bullish) stocks that make a first pullback to their 20 Day Moving Average and hold, will often bounce back and resume their uptrend. It's that simple and straight forward, just the way I like it... SIMPLE!!

For my strategy, I use the basic idea of Linda's "Holy Grail" strategy which is I want to buy strongly uptrending stocks on their first(or second) pullbacks to their 20 Day MAs.

I use the 20 day EMA(20 day MA will work just fine as well).

I want to focus on stocks from my #PowerEarningsGap watchlist(I created this special hasthtag for AoT members as well as my twitter followers to follow along and learn more about my Power Earnings Gaps strategy) since these will be the leading stocks that already reported STRONG earnings and chances are they are already rallying or at least in overall uptrend.

So I track my "Power Earnings Gap" plays on a separate watchlist, this list has around 25 to 30 names and I update it(add or delete) every earnings season... Its a great way to discover NEW and HOT names that are reporting strong, powerful earnings and the stocks are moving strongly higher as a result. The cool thing about the "Power Earnings Gaps" strategy is I don't have to gamble and hold stocks into earnings.....
I simply wait until AFTER earnings are reported and so now my main job is to track and see which ones are the STRONGEST, LEADING names... I simply wait for these powerful stocks to SETUP properly in tradeable technical patterns, i.e. BULL FLAGS, wedges, pennants, or hammer reversals off key moving averages or support levels ...

In today's blog post, I'm discussing the "HOLY GRAIL" setup.

I track the 'Power Earnings Gappers'(PEG) closely and I wait to see a stock pullback, ideally I wanna see it in what I like to call a "SMART PULLBACK"... in other words, a slow and steady low volume, multi day pullback to test the 20 Day MA(has to be the first or second time it tests the 20 Day MA post the 'Power Earnings Gap' day). That's important because we don't want to buy the 3rd, 4th or 5th retest of the 20 DAY MA because the odds of it bouncing every single time off the 20 Day MA if very rare! So keep in mind, we wanna focus on buying the FIRST or SECOND test of the 20 day MA! I then wanna see the stock pullback, TEST and HOLD the 20 day MA. If they stock breaks briefly below the 20 Day MA and then recoups to form a reversal candle of some sort such as a HAMMER CANDLE(which is my personal favorite reversal candle: it looks something like this:

Look at the WYN chart below, it's a perfect example of the type of "SMART PULLBACK" to test the 20 Day MA I prefer to see in stocks I want to trade using the "Holy Grail" technique:

Take XLNX for example: This was a stock from the #PowerEarningsGap , XLNX was on FIRE and running strong as you can clearly see from the chart below.... On Tuesday morning, an Analyst downgraded XLNX based on "valuations", XLNX gapped down and sold off about 5% and pulled back to its 20 Day Moving Average.... once I started to see it reverse a bit off the intra day lows and form a "HAMMER CANDLE" on daily charts. I alerted ART OF TRADING members(All trade alerts are Emailed, Tweeted and SMSed to members in a timely manner) to go long XLNX.

Here's what the original Trade Alert looks like:  

Art of Trading‏ @AOTtrades  May 23

Long XLNX at 63.70  stop loss at 62.80

Target: $67 to $68

And here's what it looked like and my rational while watching the intra day charts...

We've held XLNX for 3 days now(raising stops along the way) and it's already up +$2.00/share from where we got in on Tuesday..... as you can see once the hammer candle was printed off the 20 Day MA... XLNX started to turn back up and rally quite nicely.....

Now, while the pullback in XLNX was not the "SMART" pullback I want to see in my "Power Earnings Gappers" ... I made an exception for this XLNX trade because:

1: It pulled back due to an analyst's "valuation" downgrade(rarely take these seriously) and not any company related news event.
2: The SMH(Semis sector) has been and is still is ON FIRE, so that gave me extra comfort into taking this XLNX
3: Keep in mind, XLNX has made a big run up since its PEG day, so profit taking should be expected.
4: The overall market was in rally mode, so when a strong stock, in a strong sector like XLNX offers you a "gift", you must take it! Don't over-think it!



Like I mentioned earlier, all my trade alerts are very timely, clear and concise!

This gives ART OF TRADING members plenty of time to trade the alerts if they choose to and have confidence that they are trading some of the strongest stocks in the stock market universe.

Here's an email I got today from a NEW ART OF TRADING member who joined this week !!

Hope you found this post helpful !!!

Happy trading !

Holy Grail Setups Took Place Today

I only took the SKF trade. got in at 149 and still in it as of this posting.

Holy Grail Explained By Wizards Den

http://www.hardrightedge.com/wizard/tl2.htm

ANR Trade Setup: HG Setup

Holy Grail Revisited

I am seeing a lot of traders who wanna incorporate this popular trade but i am seeing a lot of people who are not understanding the pattern the way I trade it. When i trade the Holy Grail(HG) pattern, it is NOT enough for a stock to just 'touch' the 20 SMA(Simple Moving Average). I need to see more confirmation for me to spot a potential winner.

1. I recommend you scan for stocks are on top for the either Dollar Advancers or Percentage Gainers lists. Track the stocks that are up at least $2 or 5% on the day for example. Then watch a handful of those stocks that meet this criteria ALL DAY and watch as the stocks rally closely. The way they rally is speaks volume about the stock. Avoid parabolic moves, avoid 'spikey stocks'. You wanna see a nice steady rally on nice volume.

2. Now, just watch how they pull back to test the 20SMA. A pullback and touch of the rising 20sma is NOT enough. Don't be in a rush to buy the first touch. Just wait and relax because the trade isn't done setting up yet. What you wanna see on the pullback a nice, smooth, shallow and controlled retrace to the test 'around' the 20 SMA(doesn't have to be exactly on the 20SMA, Don't be so anal about it). But more important then the 'test' of the 20 SMA, YOU WANNA BE ABLE TO SPOT A PATTERN. I love to spot WEDGES(like i said in my trader interview last week). Being able to spot a wedge, flag, or triangle is even MORE IMPOTANT than the actual test of the 20SMA. This is what a lot of traders are missing in this setup.

So please train your eyes to spot patterns and picture the pattern in your mind or draw it. Just be able to spot the patterns and couple that with a test of the 20 SMA and you have increased your potential of detecting a winning trade. The trade fails once the pattern is broken, NOT when the the stocks drops below the 20 SMA necassarily.

Vice Versa for shorting.

Trade Smart!

Peace.

My Favorite Trading Pattern: HG and Wedge Combo

Holy Grails Setups Taken Today and Examples

Example Of Holy Grail (HG) Setups that Took Place Today

I only took the FXP trade but the others are just for your learning pleasure. enjoy.

Hol Grail Trade Du Jour

I started the day out on a shitty note by covering an overnight short position in MOS for a $1,200 loss. So i just stepped away and took it easy for a few hours and recomposed my mind. I took 3 small gainer trades in AAPL, MON and SKF. Then FXP setup in the most perfect HG setup. And i took it quickly. It started making money within 30 seconds(good trades work right away) and then i added more shrs and made it a complete 1000 share lot. I ended the day up $ 1,800.

Anatomy of HG Trade: Enjoy!

Two Nice Holy Grail (HG) Setups that Took Place Today

The HOLY GRAIL SETUP EXPLAINED

THE HOLY GRAIL SETUP


First of all The “Holy Grail” trade was originally described in Linda Bradford Raschke’s Street Smarts book.

I get questions all the time about the Holy Grail Setup: Well here it is explained and i'll walk you thru it step by step.
I want to let you know that this setup is VERY Easy and Simple and it is very spottable and occurs very often especially during trending markets, UP or DOWN. Also, if you master this pattern, i am confident, that'll you'll be able to pull money out of the market a lot more often.


Tools You will Need to Day Trade the Holy Grail Setup:

1. A 5 minute chart
2. Volume
3. The 20 Bar Simple Moving Average(SMA or EMA)
4. Basic pattern recognition skills (i.e. BULL FLAGS, triangles, pennants, Bear flags, etc)
5. An ego that handle a small loss from time to time :-)


First:
You need to spot a trend in a stock (i like to use the 5 minute bars, ten minute bars work really well too). A trend should be either UP or DOWN and you can see that just by eye balling the direction of the price trend after the first hour of trading.


Second:
You want to look at volume to see the conviction of the move. Lots of volume during the first hour will tell you the force of the move UP or DOWN. Tells me how reliable the move is and the conviction of traders.

Third:
Now, this is the most important part of the setup and this is where this setup becomes an art and moving away from the 'science' of trading. This will test your eye balling skills, pattern recognition skills and trading prowess.
You wanna see a slow and corrective retrace back to test the 20 bar simple moving average(20 SMA). You wanna see a hammer off that 20MA, a pattern like a triangle, a wedge or a coiling symmetrical triangle, NR7s, a consolidation move of some kind. The operating words here are: slow and corrective retrace to test the 20 SMA.
Really strongly trending stocks will not pullback for long, so you need to be aware of that and be on the lookout for that scenario and that'll tell you what kind of demand/supply you are dealing with.
I always BUY/SHORT into the pattern/pullback but some people like to wait for a complete test and breakout away from the 20 SMA.

Fourth:
I ALWAYS buy HALF a position into the pattern/test and if the trade starts to work(hopefully right away, because 'time is money') and make money then I will add the other half and ride out a bigger move. I prefer to be wrong on a small amount then be wrong on a full position. BUY a half position and test it out, if you start making money then, that the market is agreeing with your assessment and trading decision and tells you to buy more because you are probably correct.
You know you are wrong when the pattern fails to hold the 20 SMA and that's when i just SELL it and MOVE ON to the next trade. Don't get stubborn and hold on to something that isn't working....please just sell it and move on. I don't use stop losses, i just use mental stops but i stick by them like my life depends on it. Trading isn't a game for slackers, dreamers, or optimists. Please just scratch the trade and move on to the next. This pattern is very common and reliable enough that be sure you'll have better success on the next trade.



Always trade in the direction of the overall trend of the market and you could make a killing on this setup. Always, trade with the order flow of the market. Why go LONG when the market is selling off. DON'T FIGHT THE TAPE! Trade holy grail patterns LONG if the market is bullish and trade inverse holy grail patterns in bearish markets.


*******A picture is worth a thousand words****** Enjoy!