Forex Dragon pattern: a turning point in the currency market. Pattern "Dragon" in the Forex market There are two such patterns
with a beautiful and powerful name “Pattern “Dragon” in fact, it is very similar to trading the “W” or “Double Bottom” pattern, but it has significant differences. Pattern “Dragon” often found on charts of various time intervals, so it should not be difficult to find it. Preference should be given to higher timeframes as the most reliable and giving a long-term forecast, which is considered more stable.
Buy reversal
Sell reversal
Features of the “Dragon” pattern
Most often, this pattern occurs near market highs and lows. This pattern price action(Prime Action) is an excellent opportunity for a trader to open low-level trades in relation to profit potential.
You can use any currency pair (preferably with a minimum spread) and any timeframe - better from M15 and higher.
First, a “head” is formed, then the price decreases, forming “dragon paws” (2 pieces). The second “paw” indicates a possible price reversal. A good sign of such a reversal is an increase in trading volumes. From the “head” to the “hump of the dragon”, a trader can draw a trend line.
In fact, the pattern is a reversal pattern, just like the “W” or “Double Bottom” patterns. Price closing above the trend line, confirmed graphically, i.e. Visually, this is a signal that the trend has reversed. The second confirmation is the closing of the price above the “hump” level, since this is the so-called. oscillatory maximum, which formed between the "paws" of the dragon.
Point A forms the “Dragon Head”.
Point B - "The first leg (paw) of the dragon."
Point C - “Hump”, is located in the range of 38.2-50% of segment AB.
Point D - “The second leg (paw) of the dragon”.
Point E is the breakdown of the trend line. This is where we enter the market.
Point F is the first point where we fix part of the profit (88-100% of the C-D segment).
Point G is the second point where we fix part of the profit (127% of the B-C segment).
Point H is the third point where we fix the rest of the profit (138% of the segment B-C).
Fig.3
In the screenshot, we see an opportune moment to sell.
The exit from the position is carried out by points F, G and H, comparing the length of the segments or using Fibonacci levels. The latter is more preferable and easier to determine visually. We stretch the grid of levels using point A as the 100% level, and point B or D (the furthest from point A) as the 0% level.
Fig.4
Our profit was 38+27+15=80 points. Not a bad result.
Strategy by patterns “Pattern “Dragon””– profitable and efficient vehicle. The main thing is to learn how to quickly and correctly recognize the pattern and use hard money management.
Use it to your health and remember that the profitability of trading depends very much on
quite common in the forex market and other financial markets and allows traders who are familiar with to successfully receive, thanks to the knowledge of all the intricacies of building and further developing a graphical model, the desired profit.
In forex technical analysis, pattern recognition is defined as the process by which traders "recognize current events while identifying certain predictable price patterns."
Although forex patterns very rarely repeat at the same trading levels or in the same time intervals, but all the same, there are patterns that repeat in certain forms and certain sequences.
The ability to recognize these kinds of patterns and trade according to certain rules on these chart patterns will help you become a successful forex trader. At the same time, successful recognition of the graphical model and trading on it should consist of a starting point and basic rules on the trading methodology. In this forex strategy, we will consider one of the patterns, which is called "Dragon", as well as justify the basic rules of trading on this forex pattern.
The Forex market very rarely goes from bearish to bullish and vice versa (the exception is V-bottoms and V-tops), without a series of certain kinds of price trends, in which formed support and resistance levels are tested. The “dragon” pattern is also based on such pivot points. and give us a good method to deal with them.
Pattern "Dragon" can be found on all time intervals and on all currency pairs.
Description of the Dragon Graphic Model:
The "Dragon" pattern is very similar to the W pattern or the " " pattern, but it has there are several distinctive rules and targets. Accordingly, inverted dragon patterns are similar to the M pattern, or Double Top.
"Dragons" very often appear on the market near market bottoms. Like double bottoms, dragon patterns are excellent opportunities to enter a trade with a low level of risk in relation to the potential reward.
The “Dragon” pattern begins its formation from the “head”, after which the price on the chart decreases and thus forms a 2nd “dragon paw”. Very often the difference between these 2 paws is 5 -10%. On the 2nd formed paw, a signal for a market reversal appears - a reversal bar or a divergence with oscillators (for example, MACD, RSI, Stochastic, etc.)
An increase in the volume of trades that follows a price reversal in the market is also a good sign of a reversal. When forming a pattern, we can draw a trend line from the "dragon's head" to its "hump".
As soon as the price closes above the trend line, and thus we receive a graphical confirmation (or we receive confirmation on the oscillators described above), then this is therefore a trend reversal signal. The 2nd confirmation of this forex pattern is the closing of the price above the level of the formed “hump”, which is an oscillatory maximum between the two resulting “legs of the dragon”.
Picture 1
Structure of the Dragon pattern:
A - "Dragon's Head"
B - "The first leg of the dragon"
C - " Dragon's hump" (should be within 0.38 - 0.5 from AB)
D - "The second leg of the dragon" (tends to be 0.618 or 1.27 from AB)
E - Breakdown of the formed trend line (signal to open a trading position to buy)
F - First profit target - 1.27 CD
G - Second profit target - 0.886 - 1.0 BC
H - Third profit target - 1.38 AB
I - A safety stop loss should be placed a few ticks below the lowest low of the two legs of the dragon.
Figure 2
In figure 3 you see Dragon pattern on the 30-minute price chart(M30) Dow E-mini futures. On January 3, 2007, the market price formed a “Dragon's head”. After that, the price fell until January 8, until the moment when the first leg of the Dragon was formed. On January 8, an attempt was made to recover to the price level of 12520. After that, we can draw a trend line, while connecting the top of the Dragon's head and the top of the Dragon's first leg. And on January 10, the second leg of the Dragon was formed, the price on the chart rolled back from the top of the Dragon hump to the level of 12420. The final confirmation of the formation of the Dragon pattern was the closing of the price on the market above the formed trend line near the level of 12500.
1. Open a trading position to buy at a price of 12520 when the price closes above the high of the breakout bar.
2. Profit target is the 1st swing high prior to the Dragon leg (1) at 12570 and the dragon head zone at 12640.
3. Place a safety stop loss order below the lowest low of the formed 2 legs near the 12410 level.
Figure 3
Inverted Dragon Pattern
This model resembles a "double top". The trading conditions are the same as for the direct dragon pattern. The “dragon hump” is very often formed at a distance of 38-50% from the “dragon head” to its 1st leg. Closing a candle below the formed trend line generates a signal to conclude a trading position for sale.
The closing of the candle below the level of the formed hump once again confirms the formation of the Dragon pattern and gives another signal to conclude a sell deal.
Figure 4
1. You should open a trading position for sale under the formed trend line.
2. Profit target is the swing low that precedes the first leg of the dragon.
3. Place a safety stop loss order above the high of the dragon's second leg.
Conclusions on the forex pattern "Dragon":
Dragon patterns are a variant of 2 tops and double bottoms. These forex patterns allow the trader to find important turning points in the currency market and predict the trend transitions from one to the opposite.
Although dragon chart patterns are quite rare on daily and weekly price charts, they are very common on smaller time intervals, and trading according to these patterns gives a great chance to make a profitable deal.
You can also add additional forex indicators for yourself for greater reliability when trading on it.
Pattern "Dragon"- a simple figure of technical analysis. It belongs to reversal price patterns, that is, by its appearance, it predicts an upcoming change in the market trend (trend).
Figure "Dragon" consists of five elements, namely: heads, two paws, hump between paws and tail. At the same time, it should be possible to draw a trend line from the head of the figure to the maximum point of the “Dragon” hump. Example.
Classic strategy
"Dragon" can be both bullish and bearish, while all the trading rules for them are mirrored. Therefore, in order not to duplicate the description, we will describe the strategy only for the bullish model.
According to the classical strategy, it is necessary to draw a line from the figure's head to its hump. At the point of intersection of this line with the price, you can enter the market. Example in the picture:
- Market Entry- execute at the point where the price intersects with the trend line;
- Take Profit 1- the first goal. We place a take order at the level of the maximum of the hump;
- Take Profit 2- the second target is at the level of the figure's head;
- Stop loss- we take out the level of the larger paw of the "Dragon".
In the process of trading using this strategy, questions may arise, we will try to answer some of them.
The nuances of trading the “Dragon in Forex” pattern
- The length of the paws of the "Dragon". In various sources, there is an opinion that the first paw must necessarily be longer than the second. We believe, on the contrary, that during the formation of a figure, when the second paw is longer, then the potential for movement is greater;
- trend line(from the head to the hump of the figure) should be well visualized, otherwise there is no point in continuing the analysis of the pattern.
- The dragon has two conflicting patterns. This is clearly shown in the pictures:
- example for "3 touches" (Three Indians).
We already wrote in the article about patterns that you should not use them as a signal to enter.
The pattern should be used as a good entry point in the presence of a major signal. So pattern conflict is not a problem.
Alternative strategies for the Dragon pattern
In addition to the classical strategy, there are also alternative ones, whether or not to use them in practice is up to you, but it won’t hurt to know about them.
If you look closely, the price pattern "Dragon" consists of two others: "Double top / bottom" and the usual trend line. Let's clarify: as a classic (which is described above), the trend line trading strategy is used. The entry/exit points are also borrowed from these patterns.
We will look at an alternative Double Top/Bottom strategy. More details in the following image:
- Entering the market, when the price breaks through the support line - point (1).
- Take profit(TP) - at the level of the starting point of the first impulse of the pattern.
- Stop loss(SL) - set a few points in front of the top of the figure.
Pattern types
The Dragon pattern is a bullish pattern that gives a buy signal. “Inverted Dragon” is a bearish pattern that signals possible sales.
Trading strategy pattern "Dragon" described above, this strategy can be applied to Inverted Dragon Pattern, only in mirror form.
Graphical analysis of stock quotes of traded instruments is one of the primary varieties of technical analysis. Empirical observations allowed traders to notice the patterns of price behavior, proving its non-random behavior. Otherwise, how to explain the lines of support and resistance, triangles, "flags" and "pennants", on which quotes have been behaving for a century with a high probability of a standard forecast.
During historical development Several dozens of such figures have been described by traders in the methods of graphical analysis. It must be admitted that a trader will need a “trained eye” to detect a pattern, which requires theoretical preparation and practical training.
You can go the other way by choosing a “reliable” figure of graphical analysis, build a trading strategy, determining the entry tactics when this figure appears and money management rules.
Trading pattern "Dragon"
A pattern is a pattern or template for something. In graphical analysis, we mean a repeating pattern of technical analysis. The Dragon pattern occurs in trending markets, and the trend develops after a failed impulse, however, this is not a strict rule, most likely an observation.
The pattern starts from head A (the top from which the reversal takes place), paws B and D, hump - C. The point of intersection of quotes E with straight line AC gives an entry point, in our case, a buy.
For sale, the figure of the dragon is similar, we find two paws, we wait for the quotes to cross the hump line, we get the point of sale.
Pattern " The Dragon” (Dragon pattern) is quite rare in the Forex market, but if it works, then the trader, having discovered this figure in time, as a rule, makes good money on it.
You can also make money on binary options using this model - the technical analysis of the chart is the same for the Forex market and for the binary options market.
The dragon is a reversal pattern. That is, the formation of the Dragon tells the trader that the mood in the market may soon change and the current trend will reverse.
Often the figure is used in non-indicator trading - the Price Action system.
There are two such patterns
- Dragon - formed during a downtrend and signals its change;
- inverted Dragon - formed during an uptrend. Mirrored to the Dragon, which is formed during a bearish trend.
Dragon Form
Like many patterns, the Dragon came from the East. Actually, that's why the figure resembles an oriental dragon - with a long body and tail.
The Dragon pattern consists of 5 parts, formed in the following order
- the head of the Dragon is the maximum price of all parts of the figure;
- the first paw of the Dragon is a local minimum of the price;
- hump of the Dragon - the maximum price between its paws;
- the second leg of the Dragon is usually the low of the price of the entire pattern or equal to the low of the first leg;
- the tail of the Dragon is the target price that the trader should make a profit.
This pattern may resemble another reversal pattern – “ Double bottom" or " W". But there is one fundamental difference.
A prerequisite for the formation of the Dragon is a trend line drawn through the head and hump of the model.
At the same time, it is important that this trend line is clearly visible on the asset price chart. Otherwise, the pattern will be of poor quality. The trend line plays an almost decisive role in the figure.
Pattern trading strategy " The Dragon»
There are two options for entering a trade
The beauty of binary options trading is that you can make money on both entries. It is only necessary to additionally confirm them with other chart technical analysis tools or Price Action patterns.
If we talk about trading in the Forex market, then the input is identical to the above-described inputs. Stop-loss is set at the minimum price of the Dragon. Most often, this is his second paw.
As in the case of entering a trade, there are also two target prices
- Hump level. If the entry to the transaction is selected No. 1, then initially it is necessary to focus on the Dragon's hump.
- Dragon head. It is expected that with a well-formed Dragon, the price will reach the level of the head.
Inverted Dragon
Now let's look at the inverted Dragon pattern. It looks something like this:
In this case, the price did not reach the level of the head, but it did completely reach the level of the hump. Therefore, all transactions made must be confirmed by other signals.
Outcome
The Dragon is a reversal pattern that is quite rare.
You can’t specifically look for it, otherwise you can incur serious losses due to a misinterpretation of the schedule. Each signal from the Dragon figure must be confirmed.
This is the only way to make money in the financial market.