Reversal Patterns. The Dragon Pattern
![Reversal Patterns. The Dragon Pattern](https://cdn.hwcdn.work/wp-content/uploads/2024/03/25160816/The-Dragon-pattern-cover-836x406.png?v=3.0.6.10?v=3.0.6.10)
The Dragon pattern is a straightforward yet fascinating technical chart pattern employed in Forex trading, named after the mythical Chinese dragon due to its visual representation. It can appear in a bullish or bearish trend (an inverted Dragon) and acts as a signal of impending reversal.
The pattern comprises five main components:
- Head: The pinnacle of the pattern, marking the highest price point.
- Two feet: These correspond to the lowest points of the pattern, symbolizing the Dragon’s legs.
- Hump: The crest between the feet, representing the Dragon’s back.
- Tail: The extension from the hump towards the right, depicting the Dragon’s tail.
![](https://cdn.hwcdn.work/wp-content/uploads/2024/03/25160638/The-Dragon-pattern.png)
How to trade the Dragon pattern
To identify and execute the bullish variant of the Dragon pattern in trading, use the following strategy:
Construct the trend line
Construct a trend line from the pattern’s head to the peak of the hump. This trend line acts as a guide for determining entry points.
Select an entry point
Trade when the price intersects the trend line. This intersection signals a potential bullish reversal.
Set Take-Profit levels
Position a Take-Profit order #1 at the peak of the hump. Then place a Take-Profit at the height of the pattern’s head.
Place a Stop-Loss
Establish the Stop Loss beyond the foot of the Dragon pattern that is furthest from the head.
The Dragon pattern: important considerations
- Foot length: While some analysts recommend the first foot to be longer, others argue that a longer second foot enhances the pattern’s potential.
- Visibility of the trend line: Ensure the trend line from the head to the hump is clearly defined for accurate interpretation.
- Conflicting patterns: The Dragon pattern may appear alongside other patterns, such as the flag or three-drive. Utilize it as an entry point in conjunction with a primary signal.
Keep in mind that the Dragon pattern is indicative of potential reversals, but it should be used in conjunction with other technical analysis techniques for a thorough trading strategy.
Follow us on Telegram, Instagram, and Facebook to get Headway updates instantly.