Is This The Holy Grail Of Trading? (The Secret Of Holy Grail Trading Strategies)

Last Updated on October 16, 2021 by Oddmund Groette

Something that a person or a particular group of people want very much to have or achieve.

  • Cambridge Dictionary defines the Holy Grail

Many traders are looking for the Holy Grail of trading, but end up disappointed and disillusioned. Let us tell from the start that there are no Holy Grail trading strategy or strategies.

However, we believe there is an approach that is pretty close to a Holy Grail of trading. It’s not a simple process but requires hard work plus delayed gratification: The Holy Grail of trading is consistency via diversification and non-correlated trading strategies. We can call this the holy grail trading system.

No single strategy works all the time, and no single trading technique or style makes you a millionaire. This is why you need to develop a portfolio of many trading strategies that complement each other:

Many traders waste their time trying to make a good strategy into a perfect one, only to realize the trading results don’t match the curve-fitted backtests. But many sub-optimal trading strategies can potentially be used to make a portfolio of strategies that gets you closer to the Holy Grail trading system.

However, trading requires skills, experience, and a long-term mindset. It’s hard to delay gratification, which is one of the main reasons most traders end up losing. Trading is a risky business, and what looks easy in hindsight is not as obvious when you are in the middle of a drawdown.

An equity curve based on the Holy Grail of trading:

The Holy Grail might resemble an equity curve that looks like this:

Your capital’s slope goes from almost zero and grows steady towards the upper right corner with practically no drawdowns. It might even look better if you manage exponential growth.

Why there is no Holy Grail in trading (presumably):

Many traders are looking for the perfect indicator or trading system. Unfortunately, that doesn’t exist. The markets are constantly evolving, and no strategy works forever. Many waste their time trying to turn a good strategy into a perfect one – and thus curve fit – making the strategy useless in predicting the future.

The good news is that there might be a Holy Grail, after all. Admittedly, it’s not the type of Holy Grail most traders dream of, but it makes a robust trading business. A steady growing equity curve is dependent on diversification and non-correlation among your trading strategies:

The Holy Grail trading is consistency, diversification, and non-correlation:

The keywords for all your trading should be consistency, correlation, and diversification. Or more precisely: non-correlation among your trading strategies. Consistency is mainly a result of non-correlation and diversification, thus understanding the two latter is vital.

It would help if you diversified into many strategies that are uncorrelated from each other. When you lose or gain in on strategy, parts of that might be offset by other strategies. We have explained the importance of correlation in a previous article:

By quantifying the strategies, you automate many of the daily tasks, a necessity to achieve the Holy Grail of trading:

Quant trading gets you closer to the Holy Grail trading system:

Why should you do quantitative trading?

  • You remove (or at least reduce) emotions from trading.
  • There are practically no limits in the number of strategies you can trade.
  • You can complement strategies by adding or removing strategies
  • No time spent on executions.
  • It frees up time for backtesting.

If you want to read more about quantitative trading, we recommend our previous articles about the topic:

The Holy Grail of trading includes this:

How do you go about making a diversified trading business that might get you closer to the Holy Grail trading system?

Trade many markets and asset classes:

The easiest way to increase diversification is to expand into other asset classes. Instead of focusing on stocks, which in most cases are highly correlated, you might diversify your strategies to include gasoline, oil, sugar, natural gas, forex, metals, etc. Each market has its characteristics and what works in stocks is unlikely to work in copper. That is mostly good!

However, in panics and times of volatility, correlations tend to increase, just like we witnessed in March 2020 and during the GFC in 2008/09.

Use different types of strategies:

Momentum, mean reversion, and trend-following are three of the most obvious trading styles you can implement and should help offset swings in your bankroll.

Trade both long and short:

Because of inflation and earnings growth, it’s hard to find profitable short strategies. Furthermore, they are less likely to work “all the time”. Most markets drift slowly upwards, except asset classes based on relative values, like forex, for example. Short also differs from long in velocity: markets tend to fall faster than bull markets rise. Bull markets rise gradually.

Inflation is a long-term headwind for most short positions, but even “mediocre” short strategies can provide valuable diversification.

Different time frames provide diversification:

Even in a bear market, long trades can work pretty well – depending on the time frame. The biggest up-days usually happen during a panic or bear market!

Let’s look at the data from the bear market of the GFC in 2008/09, from May 2008 until the bottom in early March 2009, a period where the S&P 500 lost over 50% of its value. Despite the dramatic drop in value, there were 99 up days and 104 down days during those months. Almost half the trading days were up days despite the weak market and the financial system’s imminent end. The difference is that the average up day rose 1.79% while the average down was minus 2.32%. It was 51 days with a rise above 1% and 30 days where the S&P gained more than 2%. The similar numbers for declines were 76 and 45.

Because of the many powerful up days, mean-reversion strategies performed well on stocks (on the long side). As an example, have a look at the strategy below and its performance in 2008 and 2009:

Even during a bear market, when many believed the financial collapse was imminent, we witnessed explosive moves on the upside. This is the exact reason why shorting is difficult.

The experience from 2008/09 shows that long strategies should perform well in any market depending on the time frame. Likewise, what happens between the open and the close could be entirely uncorrelated compared to the long-term trend. Day trading strategies are valuable.

We believe you stand a better chance if you are agnostic and open to any time frame that shows promise. Don’t label yourself “swing trader” or “day trader”. Be open to whatever the market offers! When the trading is “outsourced” to your computer, you gain tremendous leverage via the law of large numbers.

Always trade smaller than you like:

The optmism/negativism bias is hard to resist no matter how experienced you are. After a good run, you count your chips and increase your bets, just before your strategies perform poorly. Opposite, after a losing run, you lower your bets out of fear of losing more. It’s a vicious cycle. Be very careful to increase or lower your betting size. When doing so, you better think long-term and not short-term.

It doesn’t matter how good your strategies are if you can’t execute them properly. How do you execute a strategy properly? You do that by trading small. By trading small, you remove much of your emotions. Trading small is an efficient way of reducing detachment to money!

The Holy Grail of trading requires capital:

Implementing a trading philosophy like the one mentioned in this article requires capital – a lot more than if you traded just one strategy. However, we believe you increase the odds for success the more strategies you employ, and thus you should reconsider your aims and strategies if you are short on capital.

What does a Holy Grail trading system look like in practice?

When you diversify and trade different strategies, time frames, and asset classes, you might get an equity curve that looks like this:

Brummer & Partner’s return. Source: Website.

The red line is Brummer & Partner’s Multi-Strategy performance, a “fund of funds” – 10 different funds as one*. The red line is unleveraged, Brummer also offers 2x leverage, and needless to say, the leveraged performance is significantly better. The red line is not straight, but it’s a pretty good line considering this is real results – not a theoretical backtest.

Last: “Buy and hold” is a sensible diversification:

Make sure you put some money aside for long-term appreciation. A smart trader diversifies into real estate, mutual funds, and ETFs – a kind of a safety valve if your trading requires leverage. We believe in simplicity and recommend the most straightforward strategy there is: buy and hold.

Long-term investing has two tailwinds trading doesn’t offer: money printing (monetary inflation) and earnings growth.


*We own units in Multi-Strategy. We have no affiliation with Brummer&Partners, we just happen to like their risk profile.


Disclosure: We are not financial advisors. Please do your own due diligence and investment research or consult a financial professional. All articles are our opinions – they are not suggestions to buy or sell any securities.