Dragon, Double Bottom and ABC Bullish Patterns with Market Context

December 21, 2012 · Posted in ABC Bullish, Double Bottom, Dragon, Fib. Zone Pivots · Comments Off 

ABC is one of the most universal pattern. This pattern is the most simple pattern but very powerful as it is part of at least 10 other patterns like Gartley, Butterfly, Double Bottom/Tops, Dragons, H&S and Inv. H&S etc. In Double Bottom patterns, the two bottoms are never really equal and may have 5 to 8% difference in their depths. So, these Double Bottom patterns also form Dragons with distinct hump and two legs. Both these patterns have ABC
embedded in it. The confluence of these patterns gaves a great opportunity to trade from Long side using ABC as a guide.

Today ES sold off from overnight on fiscal cliff news. ES traded about 50 points down overnight but recovered 30 points at the open. This morning I was patient to develop any potential patterns to trade. Around noon, I started noticing price is entering into the extreme Support Zone (Fib. Zone Pivots) of 1415 to 1418. Fib. Zone Pivots do provide great support and look for any patterns to develop to trade. Around 12.50pm, I noticed price is forming a double
bottom pattern in the FZP and started to breakout. This pattern also has Dragon setup with a smaller ABC inside. Trading these patterns strongly supported by the FZP is an excellent opportunity. I also watched CMI and other VLTY. VLTY is safely below 50 and CMI3 was green and CMI5 was nearing GREEN setup.

ABC Bullish pattern signaled EL (Entry Level) at 1419 with a stop at 1416.5. Targets were 1421.5, 1424. Around 1pm I entered a Long trade at 1419 with a STOP at 1416.5. At 2pm, I exited my trade at 1421.5 (+2.5) and 1424 (+5 pts).

Test of Patience — Dragon/Double Bottom/ABC Bullish Trade in NQ

May 2, 2012 · Posted in ABC Bullish, Double Bottom, Dragon · Comments Off 

Test of Patience — Dragon/Double Bottom/ABC Bullish Trade in NQ

Today markets sold off from the overnight High of 2753 in Nasdaq futures to a low of 2702.5,
with 11 pt Gap Down. Usually when markets either Gap Up or Gap down big (>20 pts in NQ or
6 pts in ES), I make a note of it to trade only in the direction of the gap all day. In my view, unless
the Gap is filled (on the same day), market is NOT reversed. Hence, I monitor Gap Ranges
with Gap Fibs. tools very closely to understand the Market Dynamics.

From the open, NQ and ES attempted a weak rally to 2718 (10 pts) until 10am and sold
off again pretty quickly. Usually this is a good short-setup below the Open level. But I started to see
hesitation in the TickStrength (NQ) and started printing reversal bars from the bottom….
Even then I was quite skeptic if it is a double bottom pattern. It also fits into a Dragon Bullish
pattern. So, I connected the Top of the Head to the Hump Level to visualize the Dragon
setup. Around 10.40am, I have also seen CMI turning Green. Once price closed above 2710
(the Intersection of TL connecting Head and Hump levels), I have decided to enter a long,
kinda half-hearted. I am still biased on the short-side due to overnight
(Globex) down session. I figured Dragon/Double Bottom is pretty decent trade setup. Also,
ABC Bullish setup with Long trade above 2709. Long 2711 with Stop at 2702 (low of the two legs
in Double Bottom). Targets are kinda tricky in Dragon pattern. The best is to trade with trail stops.
I enter Trail Stops only after my 1st target is hit around 2720. Then I move my Stop to B/E of the
entire lot to protect my trade. In my view Dragon’s differ from the Double top and Double Bottom
trading in few aspects. I’ll attempt to write that topic in another blog post.

Here comes the patience part., Usually I struggle with it but today I was
quite determined to see my targets or my Stops get hit, if I am wrong. I would
be break-even after my first Target at 2720. My next targets are 2728 and 2738 (ABC Bullish Price Targets
100%, 127-162% AB setups). After taking 1/2 of position at 2720, I moved my stops to 2711 b/e. Then
I patiently waited for next 2728. Once price started to trade above my
first target: 2720 level, I moved my stop from B/E to 2nd stop level, just below
the Prev. Swing Low (2715). My second target 2727.5 was hit fairly quick for 16.5 points
profit. Now my struggle with Patience started as my price reversed and I was pretty much
ready to close trade on my last lot (3c). But I was pretty determined to wait either my
stop at 2715 or my next target 2738 is hit. From 1pm, next 2.30 hours was testing my
patience. Around 2.30pm, once price traded above my Second target level 2728, I moved
my stop to previous swing low (2718). Now NQ made another swing high and low. Around
3.45p, I realized Market may close without my target hit and I am comfortably
profitable in the trade. So, I placed an order to close at 2730.5 to net 19.5 points.
Sometimes Patience rewards you well, some times false belief coupled with patience
kills you. Today was a good ending :)

Trading Dragon Pattern in S&P Emini (@ES)

April 6, 2012 · Posted in Double Bottom, Dragon · Comments Off 

Dragon Patterns are similar to Double Bottom patterns. But Dragon Patterns have very specific rules and are usually low-risk setups.

This morning I noticed a Dragon pattern since I came to office. I resisted trading it until the market open. Being a holiday and weekend I was expecting to trade light or NOT trade at all but at the Open I have decided to trade Dragon with some caution. ES Dragon on 1220 Tick chart was very compelling and it is such a rare opportunity. At 9.31am I placed a trade as ES started to trade above the Hump level (1389). The reward could be as high as 1400-1402 targets with a stop between the lowest of the two legs in two steps of half each. Targets are 1392, 1396, 1398-1400. I also planned on trading exiting the trade if it does not work out by lunch time.

Around 9.50am, my first target was hit at 1392.5 giving me +3.5 points on 1/3rd of my trade position. Then I moved my stop to 1389 (b/e). About 11.05am, my second target was reached at 1396 adding +7 points on the 2/3rd of the trade. My next target is 1398-99 with stop moved to 1393-94. ES did reach 1397 and I kept waiting. After agonizing 1 hour 45 minutes at 12.45pm, ES hit my stop loss at 1393.5, adding 4.5 points to final lot.

I am glad I closed my trade as ES started to drift side-ways rest of the day and closed around 1392.

Dragon patterns usually form at market bottoms. Dragon patterns work in all time-frames and in all market instruments. Like most Double bottom patterns, Dragon patterns present excellent trading opportunities with low risk to reward ratios. The Dragon pattern is similar to the “W” pattern and the Inverse Dragon pattern is similar to the “M” pattern, albeit with different trading rules.

The Dragon pattern starts with a “Head” formation and price declines from the head level to form two legs of the Dragon. These two legs in a Dragon pattern usually form within 5% to 10% of the price difference. The second leg gives a strong indication of imminent reversal when it posts a key reversal bar or a divergence in any oscillator indicators. The price rise in the second leg is usually followed by a spike in the volume. A trend line is drawn connecting the head of the Dragon to the hump. When the price closes above the trend line and is also confirmed by price action or divergence in any oscillator, it signals a reversal. The second confirmation of a Dragon pattern occurs when the price closes above the hump, 38% to 50% of the range from the head to the low of the first leg.

Trade: Aggressive traders enter a long trade when the price closes above the trend line (see Figure 8). A better trade entry may be when the price closes above the hump level. Enter a long trade a few ticks above the hump level.

Target: Targets are usually at 127% of the second leg range and another target is set near the Head level.

Stop: Place a stop order below the lowest low of the two legs.

Dragon Pattern

February 1, 2010 · Posted in Double Bottom, Dragon · Comments Off 

Double Top and Double Bottom patterns are part of classic technical analysis. Double Top/Bottom patterns are very common and form in all timeframes and in all instruments. These patterns form when prices fail to make new highs/new lows at significant previous levels. Double Top and Bottom patterns are relatively reliable and easy to trade. There are many variations of Double Top and Double Bottom Patterns. Classic ‘M’, ‘W’ patterns, 2Bs, Adam-Eve and Dragon Patterns are part of DT/DB Patterns..

Today’s Dragon Pattern is one of the classic (not the prettiest) in Dow-Emini Futures. The Dragon pattern emerged as @YM made two bottoms (legs) near 10000 level. The hump was near 50% of the retracement level (10065). A trend line is drawn connecting the head and the hump for trade entry. The Trendline breakout near 10050 triggered the first trade in to the Dragon pattern. First target is set at 10100 and 10130 levels.

Dragon_Feb0110

Here is Dragon Pattern explanation from my book “Trade Chart Patterns Like The Pros”


Dragon patterns usually form at market bottoms. Dragon patterns work in all time-frames and in all market instruments. Like most Double bottom patterns, Dragon patterns present excellent trading opportunities with low risk to reward ratios. The Dragon pattern is similar to the “W” pattern and the Inverse Dragon pattern is similar to the “M” pattern, albeit with different trading rules.

The Dragon pattern starts with a “Head” formation and price declines from the head level to form two legs of the Dragon. These two legs in a Dragon pattern usually form within 5% to 10% of the price difference. The second leg gives a strong indication of imminent reversal when it posts a key reversal bar or a divergence in any oscillator indicators. The price rise in the second leg is usually followed by a spike in the volume. A trend line is drawn connecting the head of the Dragon to the hump. When the price closes above the trend line and is also confirmed by price action or divergence in any oscillator, it signals a reversal. The second confirmation of a Dragon pattern occurs when the price closes above the hump, 38% to 50% of the range from the head to the low of the first leg.

Trade: Aggressive traders enter a long trade when the price closes above the trend line (see Figure 8). A better trade entry may be when the price closes above the hump level. Enter a long trade a few ticks above the hump level.

Target: Targets are usually at 127% of the second leg range and another target is set near the Head level.

Stop: Place a stop order below the lowest low of the two legs.

ABC Pattern with Market Structure Low (MSL)

December 18, 2009 · Posted in ABC Bullish, Double Bottom, Market Structures · Comments Off 

ABC patterns are corrective patterns where trades are only traded in the Trend Direction (in AB Direction).
ABC Pattern formations are more powerful when a Market Structure Low (MSL) or MSH is part of the structure.
These patterns are traded with Market Context using Fib. Bands and MSH/MSLs to find perfect patterns.

Here is the @ES chart in 1220 tick time-frame, where point ‘A’ was MSL. Also, note point ‘A’ is outside the
extreme Fib. Bands. After a retracement of 90% (small Triangle of only 2.5 points), price retraced back into
the Fib. Bands and signaled an AB trade at 1090. The initial targets were very small: 1091-92 (100-127%).
This pattern continue to trade higher and seen major resistance at VAH (Value Area High).

ABC_MSL

ABC Bullish
Fib. Bands
Globex Pivots
PriceProfile
Market Structures

Example: Double Bottom in NDAQ

December 6, 2009 · Posted in Double Bottom · Comments Off 

NDAQ_DB_Nov2309

Example: Double Bottom in COW

December 6, 2009 · Posted in Double Bottom · Comments Off 

COW_DB_Nov2309