Dragon Pattern
February 1, 2010 11:33 PM

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.


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.


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