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The Holy Grail Trade set up is a way to scalp volatile crypto markets that you are not trying to HODL.
When you merely want to day trade it (think of Ripple) this is a great technique.

Here are the Power Point Slides to understand the background of Average Directional Index and the Holy Grail Trade Set Up.

Average Directional Index (ADX) indicator:

  • Created by J. Welles Wilder
    • Father of Relative Strength Index (RSI), Average True Range, and the Parabolic SAR
  • ADX is a “non directional” indicator that measures the degree/strength of a trend over a given period of time
    • Based on comparing the highs and lows of bars and does not use the close of the bar
      • Calculated based on moving average of price range expansion over given time period
    • Standard default period of 14 is used
    • Plotted as a single line with value between 0-100
    • Non directional meaning regardless of trend direction (up or down) the ADX value will be a positive value
  • Low ADX signifies a ranging market (consolidation) that is not trending thus, lots of price bar overlap
  • Conversely, a high ADX value (above 30) signifies a market that is now trending with significant momentum
    • The higher the ADX the higher the trend strength

“The Holy Grail” trade/setup:

  • Originally, created by Linda B. Raschke and Laurence Connors, as a precise tool for scalping with the direction of the trend
  • They chose the name Holy Grail more as a joke
    • There is no such thing as a flawless/perfect trade that guarantees success or 100% accuracy
  • The Grail trade uses the ADX to systemize trading with the trend
  • The rationale behind it is that a market that is strongly trending will retest most recent swing high/swing low after retracement
    • More specifically, in an uptrend you buy the dips and in a downtrend you sell the bounces
  • They state this scalp may be used on any time frame however, make sure to back test before using as you should with any trading tool

Rules for the Grail trade for buys (sells are reversed in downtrend) in an uptrend:

  1. 14 period ADX must initially be above 30 and rising
  2. Look for price retracement to 20 period EMA
  3. Once it touches 20EMA, place a buy stop (in up-trending market), above the high of the previous bar
  4. Once filled, place a sell stop (stop loss) just beneath the new swing low price just made
    1. Trail stop
    2. Exit target is swing high made prior to retracing to the 20EMA (up to you if you want to leave part of position open if you think another leg up is coming)
  5. If stopped out, re-enter the trade by new buy order at original entry price
  6. After successful trade, ADX must again turn above 30 to enter another trade. Actually its best to enter a 2nd trade if ADX reaches level even higher than the first