Linda Bradford Raschke and Laurence Connors
Raschke's 'Holy Grail': the first pullback in a trend that is still young
Linda Raschke and Larry Connors named this setup as a joke — it is the closest thing they had found to something reliable, and they were clear that nothing deserves the name. What makes it worth studying is not the entry, which is an ordinary pullback buy, but the condition attached to it: the setup is only valid while the trend is young, and it decays measurably as the trend ages.
- Style
- Trend following
- Approach
- Mechanical
- Difficulty
- Intermediate
- Horizon
- Swing (days to weeks)
- Holding period
- Days
- Time needed
- 30 minutes a day
- Markets
- Futures · FX · Single stocks
- Source
- Street Smarts: High Probability Short-Term Trading Strategies — Linda Bradford Raschke and Laurence Connors
The rule set
- ADX(14) above 30 and rising confirms that a trend is both strong and still developing
- Wait for price to pull back to the 20-period exponential moving average
- Enter with the trend once price confirms a turn near the average — Raschke used a stop above the prior bar's high
- The stop goes beyond the extreme of the pullback
- The first target is the previous swing high (for longs) or low (for shorts)
What makes it distinctive
- It only trades the first pullback in a freshly established trend, which produces few signals and unusually clean ones
- ADX gives an objective answer to 'is this trend strong enough', replacing a judgement most systems leave implicit
- The target is explicit and modest — the prior swing extreme — rather than an open-ended hold
When it works
The first pullback after a trend has established itself with real momentum behind it — the phase where a market has broken out of a range and is still attracting participants.
When it fails
Late in a trend the pullback becomes the reversal and price cuts straight through the average. Once ADX flattens or rolls over, signal quality drops sharply and the setup starts buying tops.
How a decision moves through it
Input
Daily or intraday bars
Raschke worked primarily on intraday futures data, and the setup translates to daily bars without modification.
Measure
ADX(14) — trend strength, not direction
ADX measures how strongly a market is trending without saying which way. Above 30 and rising is the condition; the direction comes from price relative to the average.
Measure
20-period exponential moving average
The pullback destination. In a strong young trend, the first retracement typically reaches this average and stops there.
Decide
First pullback, with ADX still elevated
Both parts matter. The word 'first' is the setup's distinguishing feature and the one most often ignored.
Act
Enter on the turn, target the prior swing extreme
A defined target rather than an open-ended hold. The setup is a short-horizon trade inside a trend, not a way to hold the trend.
About the name
Raschke and Connors called it the Holy Grail as a joke. Their point was that this was the nearest thing they had to a consistently good setup, and that anyone looking for an actual holy grail was going to be disappointed.
The name has since been quoted straight often enough that it deserves correcting. This is a pullback entry with an objective trend-strength filter — a good setup, with a documented failure mode, that produces a handful of signals a month.
What ADX actually measures, and why it is the interesting part
ADX — the Average Directional Index — measures how strongly a market is trending, in either direction. It says nothing about which way. A reading of 40 is compatible with a violent rally or a collapse.
| ADX | Reading |
|---|---|
| Below 20 | No trend. Range conditions |
| 20–25 | A trend may be developing |
| Above 25–30 | A trend is established |
| Above 40 | Very strong, and often late |
| Falling from a high level | The trend is losing force |
Raschke's condition is ADX above 30 and rising. The rising part is doing as much work as the level: it says the trend is still gaining force rather than maturing, which is the state in which a first pullback gets bought.
Why 'first' is the load-bearing word
The setup is not 'buy pullbacks to the 20 EMA in an uptrend'. It is 'buy the first pullback after ADX has confirmed a strong new trend', and the difference is most of the edge.
The reasoning is about who is left to buy. Early in a trend there are participants who missed the initial move and are waiting for a better price; the first pullback gives them one, and their buying is what turns it. By the third or fourth pullback that population has largely been served.
First pullback
- ADX still rising
- Buyers who missed the breakout are waiting
- Retracement typically shallow, reaching the EMA and stopping
- Prior swing high is a nearby, reachable target
Fourth pullback
- ADX flat or falling
- The waiting buyers have mostly bought
- Retracements getting deeper each time
- The 'pullback' is increasingly a reversal
Five ways into this system
- ADX, the pullback, and the trigger that keeps you out of a continuing declineFour conditions, one of which — that this is the first pullback — cannot be computed and has to be tracked.7 min read
- A tight stop, a defined target, and a payoff you can compute before enteringThis is one of the few setups in the library where both the risk and the reward are known before you enter, which makes the sizing decision unusually clean.6 min read
- Where trends are clean enough for a first pullback to mean somethingThe setup needs orderly trends and produces very few signals per instrument, which makes a watchlist a requirement rather than a convenience.5 min read
- The late pullback, the ADX that peaked, and the setup taken because nothing else signalledAlmost every failure of this setup is the same failure: it was not the first pullback, and it was taken anyway.6 min read
- The Holy Grail setup for beginners: what ADX measures and why 'first' mattersA pullback entry with one unusual condition attached, and that condition is the part worth learning.6 min read
The ideas behind it
This system assumes you already know these. Each one is explained from scratch in Investing 101.
Compare with
- Elder Triple ScreenLet the weekly chart decide which direction you are allowed to trade, then use the daily chart to wait for a pullback and buy into it.
- Fibonacci Retracement SwingAfter a clear directional move, wait at one of a few standard retracement levels for price to turn, and join the trend with a defined invalidation point.
These are documented methods described for study. Nothing here is investment advice, a recommendation, or a claim about future returns — every system on this page has losing periods, and the pages say where.
Reading about a system is not having one.
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