Thursday, May 25, 2017

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:  

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 !

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