|Trade in direction of trend. Retracement Trade.
Holy Grail Pattern from
Grail trades are retracement setups just like
the mini-skirt, but in larger timeframes than the 1
minute chart. As well, the grail is qualified by an ADX
reading over 30. Again, the setup is a retracement toward the
20 EMA, with a target of a test of the last swing high or low.
Chart 1 above shows a grail sale on the Dow hourly chart. With
ADX above 30, the Dow retraced to the area of the 20 EMA, and
then tested down one more time to the prior swing low. If you
trade the grail in these larger timeframes, you will typically
need wider stops. You can also look for entries on smaller
timeframe charts as a way of further managing risk.
We can use the examples of grail setups within a downtrend in
Chart 2 above for a more detailed look. In a trending market
where there is impulse, a retracement to the EMA on
whatever timeframe is essentially a flag - a pullback
in a trend. When price retraces to the EMA, if the ADX is
above 30, it is called a grail buy/sell, which is nothing more
than an ADX-qualified flag. On the right side of the chart
above, we see grail sales. As with all retracement patterns,
the objective is a retest - in this case a retest of lows.
When that pattern hits objective, it has target, at which
point the grail is over. We stop thinking grail then, and look
for either continuation or bounce. If
that market gives a new leg down, and the ADX continues
to rise, and the market exceeds that last swing low,
then the next pullback to the EMA will set up another grail.
In Chart 2 (above), the red arrows mark the pullback to the
EMA. This is the grail setup. The blue arrow marks the target
of the grail, which is retest of the low. Also note that ADX,
shown along the bottom of the chart, is over 30 (we have ADX
coded on our charts to show green above the value of 30).
After the first grail, we have follow-through down - more
impulse. The ADX continues to rise. Thus, the next pullback to
the EMA, marked at the second red arrow , is also a grail.
Price just about hits target on that one, too. Since there is
no new leg down at that point, and since the ADX is now
falling, the ensuing pullback to the EMA is not a
grail. We must have progress in the direction of the trend
before a new grail can form. This is true of any flag or other
As with any technical
pattern, a failure can be a more powerful signal in the
opposite direction. In Chart 3 above of the 3 minute SP, after
a leg up that drove ADX over 30, price pulls back to the area
of the 20 EMA. However, rather than test back up promptly,
price falls through the area of the EMA and then forms a long
sideways ledge, with a declining ADX. The hesitance of the
market to push back up is a tip-off to weakness. The failed
grail buy setup then leads to long liquidation.