Setups › Holy grail pullback

Holy grail pullback

From Linda Raschke. In one line: strong trend (ADX > 30), dipped to the 20-day EMA and held.

About the names. The famous names are credit for publicly described ideas. Every test here uses our own simplified, fully coded version of the idea, so the numbers show how our code behaved on past prices, not how the named person trades or traded. No affiliation with, or endorsement by, any named person.

8,289

trades tested

38%

win rate

-0.12R

average result

-0.50%

vs Nifty per trade

What it looks like

Linda Raschke's holy grail (from her book Street Smarts with Larry Connors): a stock in a strong trend pulls back to its 20-day exponential average and bounces. The ADX indicator measures how strong the trend is.

Why traders use it

A strong trend rarely ends on its first pullback. Buying the dip to a well-watched average gives a better price than a breakout and a natural stop just below the average.

The exact rule we tested

Price above the 200-day average.
ADX above 30 (a strong trend).
Today's low touched or came within 1% of the 20-day EMA.
Today's close is back above the 20-day EMA.

Raschke's original also needed the ADX to be rising. We recorded that stricter version separately; on NSE it gave far fewer trades and did not do better in the November 2026 backtest.

Mistakes to avoid

Buying the first touch after a very long run. Late in a trend, the pullback can become a top.
Ignoring a fast drop. A stock that crashes to the average in one day is not pulling back calmly.

How we tested it

Every day from 05 Nov 2024 to 05 Nov 2026, every main-board NSE stock (price ≥ ₹50, turnover ≥ ₹5 crore a day) that showed this setup was bought the next day above its last high, with a stop 1.5 ATR below and a target 2.5 ATR above, and sold after 10 trading days if neither was hit; 0.1% costs per trade. Traders usually hold this setup 3-5 days.

The maths behind the result

Average winner +1.12R, average loser −0.88R, win rate 38%. Expectancy = 38% × 1.12 − 62% × 0.88 = -0.12R per trade. To break even with this payoff you need to win at least 44% of trades. How expectancy works.

A historical simulation, not live trading and not a recommendation.