How to Trade a Bullish Dragon Pattern Trade Entry A trend line is drawn connecting the head of the Dragon to the middle swing high at hump level. After 2nd leg completion, when price closes above this trend line strong reversal price action or divergence in any momentum based oscillator indicators (like RSI), first trade entry (long) is entered. A more conservative trade long entry (second trade) is entered when price closes above the hump level. Stop: A Stop is placed below the lowest low of two swing lows (legs). Targets: The first target range for a Bullish Dragon trade is set at 62-78% of swing range of head to 1st leg from the second leg level. A second target is set 100% of swing range and the third target range is set at 127162% of the swing of the head to the 1st leg from the second leg. It may be best to trade these patterns with Trail Stops once price starts to rise towards target ranges. Example The following example shows Bullish Dragon formation in Monsanto (Weekly) MON chart from July 2015 to 2016. Here are some of the key points and how it is traded. MON formed Dragon formation from October 2014 to May 2016. MON formed a swing high to form the head of Dragon pattern (Feb. 2015) In October 2015, MON made swing low to form Leg1 level at 84.27. MON retraced about 43% into the prior swing to form Hump level at 100.62. A second swing low (leg 2) was formed in March 2016. A Trendline is drawn connecting Head and Swing High at Hump level. Price closed above trendline to signal first long entry at 91.30 (April 2016). A Stop was placed below the lowest low of legs. First target is set at 62-79% ($111-119) of head to leg1. Second Long entry was triggered above Hump level ($100.62). The second target level is at $128.5 (100%) of head to leg1. The third target level is at $140-156 (127-162%) of head to leg1.
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