The True Holy Grail Strategy

Since you first had the realization that it’s possible to make consistent money from trading markets, it’s likely that you subsequently formed an idea that “there must be a strategy out there that always, or at least almost always, makes a profit with every set up”. 

Forget your psychology, how much money you have to trade, or your level of experience: if you could follow a strategy with the right analysis and rules, you’d always make money, right?

This notion of depending on just one kind of strategy to repeatedly make money each week or month is often called a “holy grail strategy” – a mythical, catch-all approach that will practically print dollars right out of your computer. 

If you’ve been around trading education blogs or channels for some time, then it’s likely that you know what professional traders think of holy grail strategies: they don’t exist. 

The belief that depending on one profitable strategy for the entirety of one’s trading career is often what leads traders to hop around (or rather, shop around for) different strategies and approaches. This can lead to a vicious cycle of losing more money than what was earned as the trader jumps ship at the first sight of a losing streak.

I’m here to tell you that there IS a holy grail strategy.

But it’s not the kind that you’re anticipating.

First of all, instead of looking for a simple, “run-like-clock-work” strategy, I suggest that you learn an approach to trading that teaches how to analyze case-by-case scenarios and take trades depending on specific market conditions. Smart Money Concepts, the Wycoff Method, ICT, and the structured smart money approach I teach in the DFX Scalping Course are all examples of learning a trading approach rather than a strategy.

But once you understand your approach and build your trading system around it, even the most successful of systems will run into periods of drawdown and strings of losses. 

Therefore, the REAL holy grail strategy is involved with how you MANAGE YOUR MONEY and MANAGE YOURSELF. 

This idea isn’t my own, I first heard the suggestion from an Inner Circle Trader video about risk management and it really lit a lightbulb in my head. 

Risk Management

Yes, it is important to trade a strategy that actually has an edge and can make more money than it loses. 

But what’s also important is how you behave when the strategy inevitably faces a losing streak.

Risk management is an art form and depends entirely on one’s appetite for risk and overall trading goals. Michael Huddleston, the man behind ICT, gives the suggestions to adjust your risk with every loss by cutting it in half with every subsequent losing trade. 

So if you risk 2% on a trade, cut your risk in half to 1% for the next trade. If the following trade after that also loses, then its subsequent trade should have a risk of no more than 0.5% and keep it there until you make back at least half of the total amount of drawdown. 

I want you to understand the power of this model. If you took four losses in a row at the original 2% risked per trade, then you’d be down 8%. However, with Huddleston’s suggested risk model, you could lose 12 times in a row before hitting the same 8% drawdown as the first. Remember that we’re playing a probability game, not a prediction game. With a solid strategy, hitting 12 losses in a row should be a rare, albeit possible occurrence. You’re much more likely to hit 4 losses in a row (Which, under Huddleston’s model, means losing 4% when risking 1% per trade). Either way, by dynamically adjusting your risk amount according to your profits and losses, you protect your capital.

Another possible approach for managing risk is something that one of Huddleston’s famous YouTuber students, Paladin, suggests (and is a model I’ve used for myself in the past). Basically, you adjust your amount risked per trade according to whether you’re in profit or in a drawdown. Paladin tells his students to trade 0.5% per trade until you make 2% profit on your account. Then you can double your risk to 1% per trade as long as you hold over 2% in profit in your account.

The benefit in reducing risk during losing streaks is that sometimes a strategy conflicts with current market conditions for a period of time – be it days, weeks, or even months. By tightening your risk while you’re in a drawdown, you’re keeping your losses small in the event of a major losing streak. 

Sure, you may miss out on the upside – while your risk is low you may experience a winning streak and fail to make as much as if you had stuck to a consistent risk amount. But seeing how most people have a problem with losing money in the markets (rather than having a problem with making too much money) it’s better to accept less of a profit in order to mitigate inevitable losing streaks.

These are just a couple of examples of how you can manage your risk and money while trading. There are other aspects of money management, like deciding when to withdraw profit or when to increase funds, which merit further research outside of this article.

Self-Management

The other aspect of the true Holy Grail Strategy is having rules for how you manage yourself while you trade. Oftentimes, sticking to strategy rules and money management rules can give you enough confidence and trust in yourself to behave appropriately. Nonetheless, certain emotions can arise while trading and these can cause impulsive reactions.

One common emotional reaction is to revenge trade after facing multiple losses in a single day or week. This could entail taking setups that aren’t there, doubling the amount risked in order to “make back” what was lost. It helps to journal your trading sessions and to get to know how you behave during these scenarios so that you can develop a set of rules for yourself.

For example, part of a personal risk plan could include rules for only taking 2 trades a day, or similarly, allowing for only 2 losses a day before you stop trading. Psychologically speaking, you’re more likely to let emotions get to you with the more decisions you have to make over time, so even if your strategy could profit more from taking all setups, it may be prudent to trade less so as to avoid impulsive decisions. These are just a few examples of self-management rules.

Conclusion

The big takeaway: the only holy grail strategies you’ll find in trading have to do with the unique set of money- and self-management rules you create for yourself to protect your capital and trade at your best. When it comes to deploying a trading strategy, it’s better to focus on learning a trading approach that teaches dynamic analysis rather than a singular strategy. You want to trade “If-then” scenarios that adjust to market conditions. 

Finally, don’t forget that trading is a marathon, not a sprint – the set of rules you’ll need to manage your money and your psychology will likely shift over time as your experience, skills, and personality change. Be sure to spend as much time researching and thinking about risk management as you do analysis and strategy.