Classic Holy Grail Buy in the Daily AD

Linda Bradford Raschke wrote a useful book on trading techniques called Street Smarts. In it she introduces a set-up she jokingly calls the Holy Grail. (Everyone knows there is no Holy Grail in trading, although I believe that money management is the Holy Grail.)

The basic idea for this set-up is that when the Average Directional Index (ADX) is high and price drops back to the 20 period exponential moving average (EMA), you should look to buy and target the previous swing high as your exit.

Obviously this technique can be applied to the short side as well: High ADX, price pulls back to the 20 EMA from below, get short and target the prior swing low.

Holy Grail Buy in the CD, Target Not Yet Achieved

You can see the same set-up in the daily Canadian Dollar, though it hasn't yet hit its target. I recently wrote about taking a countertrend trade in the CD, trying to anticipate a major reversal. I'm looking for this particular Holy Grail set-up to fail.

Trading in the direction of the trend is something every beginning trader should focus on, since things are easier when you have the wind at your back. Trading against the trend is something that only experienced players should attempt since it requires the ability to cut and run the instant you're proven wrong... beginners tend to hesitate and rationalize when things go awry.

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