Tuesday, March 25, 2008

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!



ainkurn said...

thanks for reminding me what exactly to look for on the HGs. I'll have to go back and make sure that what I am trading meets these criteria.

Blue said...

You must have caught some chat on Wallstreak yesterday Stewie. Couple guys were talking about this and that being an HG and I posted a link to your Jan. article on what an HG is.

More good details here. Thanks for continuing to educate us.

Unknown said...

Thanks for helping us understand the HG.
I'm looking at the CIT chart and following your dialog about when to buy but can't figure out when you would sell.
Could you please expand on when to sell.
Thank you.

Stewie said...

Usually HG meausres to the most recent high as a first target. that what i typically shoot for in the type of trade. However, it is very discretionary. Depending on the market. A choppy mrkt and i'll take an gain i can get in a nice, trending strong market up or down, i'll let the stock run a little longer. this tpe of pattern is very difficult to trade in a choppy mrkt, use mainly in trending mrkts.

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