Investing Trading Holy Grails and Beyond


By Van Tharp International Institute of Trading Mastery

Wow! I had always believed that, just as there is only one Holy Grail in the legend, there was only one definition for the “Holy Grail” in trading—a system that gives and keeps on giving. If only someone could find it, then they could trade it contentedly for untold riches until they decided to retire, if they decided. Nice image, isn’t it?

Well that idea is so 2005...or something. Now there are multiple Holy Grails around! A quick search found the following trading related Holy Grails:

A Holy Grail Indicator
A Holy Grail Setup
A Holy Grail Chart Pattern
A Holy Grail Forex Strategy
A Holy Grail Day Trading Strategy
A Holy Grail Exit Rule

At about that point, I stopped searching. Googling the term “Holy Grail System” yielded nearly six million search results. Not all of those results were related to trading—I saw roulette tables or database management in the mix. (For some reason, I was heartened to see images from the movie “Monty Python and the Holy Grail” among search results.)

Holy Grail has a different meaning to traders, in part, depending on their stage of development. Typically, we see three development stages for traders over time.

1. You Can Make Easy Money In the Markets

The notion that there’s some Holy Grail trading idea appeals to almost everyone and why wouldn’t it? There’s easy money to be made in trading! Uncover the secret and get what you want out of the markets! If we could capture the idea of trading success for this mindset in a diagram, it might look like this:



This belief drives certain types of behavior, such as –

Watching lots of CNBC,
Subscribing to newsletters,
Buying black box trading systems,
Attending trading conferences and strategy workshops,
Reading trader blogs,
Backtesting and optimizing trading systems,
Switching systems or markets when they don’t seem to work well.

Weeks or months or years down the road, many traders run out of money, time, or patience, and realize that trading is not easy money. Most will leave the idea of trading for other greener pastures. Meanwhile, those who are committed enough to continue pursuing the craft start asking questions rather than concentrate on finding a Holy Grail system.

2. How Do You Make Money In The Markets?

With some additional research, traders may start to understand new ideas and concepts about trading... perhaps like these:

A trading system has numerous parts, not just a setup or an entry.

A trading system can perform exceedingly well—under the right market conditions.

Managing risk is paramount to trading survival.

Position sizing strategies are more important than trading systems.

Treating trading as a business and having a thorough plan can make a significant difference in trading results.

Your stress, emotions, and beliefs strongly affect your trading results.

Van used to say that there are three main factors that contribute to trading success and, in relative terms, your trading systems contributed only about 5% to that success. That’s pretty minor compared to the amount of time and effort that many traders invest in systems development.

Position sizing strategies, on the other hand, made up about 15% of the total success equation. Why are they so much more important that the system itself? Can you imagine someone actually finding a Holy Grail trading system but then blowing up their account because he or she didn’t understand the concepts of risk management and position sizing strategies? Now imagine someone with “only” a decent system (say an SQN score in the 3s) who achieves their objectives (success) because he or she thoroughly understands position sizing concepts. If both of those scenarios seem plausible, which one would you prefer for yourself?

Van attributed the vast majority of trading success, however, to you and your psychology. Knowing and understanding the ideas that make up you and how you operate is the most important factor in trading. These ideas included – your parts, your values, your strengths, your weaknesses, your significant beliefs about who you are and your place in the universe.

At his trading workshops, Van used to draw a diagram that looked something like this:



(Note- Van’s said the figures of 5%, 15%, and 80% were “PFA” – Plucked From Air)

If you buy into this idea that “you” are the most important factor in your trading, and you are mostly the Holy Grail, you might consider Van’s current thinking on what contributes to trading success.

3. Trading Success Comes From Internal Control

Van now draws a new diagram for trading success at his workshop and it looks like this



Van now explains that trading success is 100% you – even the parts he previously referred to as “technical” – the trading systems and position sizing strategies. How could those technical parts be considered you? First, trading systems are a result of your psychology. Have you ever tried to trade a system that works extremely well for someone else only to find you can’t trade it nearly as well – or, you even lose money trying to trade it? You can’t trade it as well because you have a different set of beliefs about the system and or about the market. Furthermore, Frank Eave’s recent experience strengthened my own views about this area. Frank affected the results of backtests through his beliefs about the way the backtest would turn out. All of these beliefs fall in the “you” category. Second, your position sizing strategies also come totally out of you. You form them based on your objectives (you) and the performance of each trading system (and you again).

In effect, Van says now The Holy Grail is all you.

An active and insightful person himself, Ken Long captured what he might call a practitioner’s view of “all you” the Holy Grail last week. He wrote about two traders who have been working diligently for several years on becoming better traders. I quote him from that note as he described what he has seen work, time and again, for traders:

"The path to mastery is through applied, disciplined, reflective, intentional, purposeful refined action, coupled with continuous improvement and risk management.

"You don’t find the Holy Grail, you MAKE it each day with how you approach your craft; there’s no substitute yet discovered for this long continuous journey."

Beyond the Holy Grail

Van posed an interesting question brought up by the idea of a Holy Grail in trading. If the concept of the Holy Grail for a trader evolves from being a magical trading system you have nothing to do with, to becoming mostly you, to becoming entirely you, then what happens if you disappear? What’s left?

Let me try to explain why Van came up with that question.

At Van’s Turbo Awakening Course for Super Traders last December, one of the Super Traders lost his sense of “me.” His sense of identity, his ego disappeared. He tried explaining it this way, “It’s like you suddenly wake up and don’t believe in Santa Clause.” He no longer believed in his identity as him.

Since then, he’s been much more capable of seeing things as they truly are but it doesn’t seem like a big deal to him. To Van, however, it’s a very big deal because he’s trading from a very different place than the rest of us. He says when he looks at price charts now, he is both the bull and the bear but he is even transcending that view.

If this isn’t entirely clear to you, don’t worry, Van says the topic confuses him a little too.

Anyway, how you view the idea of a Holy Grail in trading might give you some insights as to where you are on the trader development scale and what might help you be more successful.

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