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Holy Grail Trading System

This system was found on the Chairman Maoxian website, more particularly at this page.

He credits a book called "Street Smarts", written by Linda Bradford Raschke.

Here's how it is described:

The basic idea for this set-up is that when the Average Directional Index (ADX) is high and price drops back to the 20 period exponential moving average (EMA), you should look to buy and target the previous swing high as your exit.

Obviously this technique can be applied to the short side as well: High ADX, price pulls back to the 20 EMA from below, get short and target the prior swing low.

A bit of tinkering is required to complete this system (in terms of what I think of as a "complete" system). For example, that paragraph uses the words "...you should look to buy..." But when creating purely objective trading systems, a specific value of where to enter needs to be written out.

Here's what I came up with:
 

Direction Rule Type Rule Family Line 1 X / Line 2
Long Entry Rules Line 1 is above X ADX 25
Entry Rules Line 1 is above Line 2 LOW
Bar offset 1		 EMA(20)
Bar offset 1
Entry Rules Line 1 is below Line 2 LOW EMA(20)
Entry Rules Line 1 is rising EMA(20)  
Entry Rules Line 1 is below Line 2 HIGH + 0.0010 Current Bar Swing High
Entry Values   HIGH + 0.0010  
Initial S/L Values   LOW - 0.0050  
Initial T/P Values   Current Bar Swing High  
Short Entry Rules Line 1 is above X ADX 25
Entry Rules Line 1 is below Line 2 HIGH
Bar offset 1		 EMA(20)
Bar offset 1
Entry Rules Line 1 is above Line 2 HIGH EMA(20)
Entry Rules Line 1 is falling EMA(20)  
Entry Rules Line 1 is above Line 2 LOW - 0.0010 Current Bar Swing Low
Entry Values   LOW - 0.0010  
Initial S/L Values   HIGH + 0.0050  
Initial T/P Values   Current Bar Swing Low  

 
Actual entry method and stop loss placement methods are not given on the Maoxian webpage. So I chose arbitrary values, as this is just a demonstration anyway. For longs, I put the stop loss 50 pips below the low, and the entry price is 10 pips above the high.

Why that entry point? Because this trading technique is to (I guess) find a good buying opportunity in an established uptrend. So to confirm the uptrend, I make sure that the EMA(20) is rising. And to make sure it's just a minor pullback and not a complete reversal, I put the entry price above the high. So the price has to push higher after initially falling back and triggering our entry rules.

The last thing to note about this system is the placement of the take profit. For longs, the take profit wants to be at the current bar swing high. So I just make sure that this take profit is actually going to be placed above the entry point of high + 10 pips. If not then there's no reason to trade.
 

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