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In the world of traders, there is the Dragon chart pattern that helps traders make profits in the financial markets. Octa Analytics explains what this trading pattern is and how it can be used to generate income from trading.

What is the Dragon chart pattern

Such an exotic name was given to one of the technical analysis patterns due to its visual similarity to the Chinese Dragon. The pattern is a strong enough figure to predict the future price change.

The Dragon pattern is formed in a falling market. Its formation begins with a Head, which represents a local maximum from an upward correction in a falling market. After the formation of the Dragon's Head, the market continues to decline, resulting in two consecutive lows appearing on the price chart—these are the front and hind Dragon's feet. The fifth element—the tail—appears after the confirmation of the pattern when the price breaks through the control line connecting the Dragon's Head with its Hump. And it is the Tail, where most profit is made.

Reverse Dragon

The formation of the inverse Dragon pattern follows the same rules but in a rising market. The Head and Hump represent local minimums, and the Feet represent the maximum as a result of testing the upper border of the pattern. The formation of the pattern is completed after the price breaks through the support line, which, same as with the classic Dragon, is drawn from its Head to the Hump.

An attentive reader has probably noticed that this pattern is quite similar to another one—the ‘Double Bottom’. Indeed, the Double Bottom can be a part of the Dragon pattern. But that isn’t always the case as the front and back Feet of the Dragon, which make up the double bottom, can be at different levels. And for the ‘Double Bottom’ and ‘Double Top’ figures, these two extremums are expected to be at approximately the same level.

Maximizing Profits with the Dragon Chart Pattern Trading Strategy

The entry point comes when the Dragon shows its tail, meaning after the back Feet, there is a breakout, and the price goes higher. Then, it is necessary to set three main profit targets:

• The first target is located at the level of the Dragon's Hump. Here, the most cautious traders can close the trade.
  
• The second target is at the level of the Dragon's Head.
  
• The third target is located at a distance equal to the height from the Head to the front Feet, measured from the point of breaking the control line.
  

The Dragon pattern was conceived as an effective formation to minimise risk while maximising profit. It is not among the most popular, but many traders use it. The Dragon resembles the Double Bottom pattern, and the resulting model is more challenging to interpret, but it is worth studying at least because of the minimal risk it contains.

It is not recommended to enter the Forex market while focusing on the ‘Dragon’ pattern formed on the lowest timeframes, because such timeframes might produce false signals—the optimal ones are the one-hour and four-hour timeframes.

Octa provides all the standard trading tools on its platform, including online chart markup, to find different trading patterns.

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Octa

Octa is an international broker that has been providing online trading services worldwide since 2011. It offers commission-free access to financial markets and various services already utilised by clients from 180 countries with more than 42 million trading accounts. Free educational webinars, articles, and analytical tools they provide help clients reach their investment goals.

The company is involved in a comprehensive network of charitable and humanitarian initiatives, including the improvement of educational infrastructure and short-notice relief projects supporting local communities.

Octa has also won over 70 awards since its foundation, including the 'Best Educational Broker 2023' award from Global Forex Awards and the 'Best Global Broker Asia 2022' award from International Business Magazine.