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Joined: 9/22/2005
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Tobydad, David, anyone else who has an opinion.
Here is a beautiful dragon. How do we trade him?
Specifically, how do we evaluate the potential profit to determine if there is enough potential to warrant entering the trade? Is there a measure rule involving the length of the neck as there is for the flag pole for flags and pennants?
I realize that there is always the concern for overhead resistance in such things as congestion areas of price, moving averages, and others
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Joined: 10/7/2004
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bcraig;
You're right; she's a beauty. What's the ticker? I need to see the chart to give some opinions.
I don't have direct answers for some of your questions because I don't do my calcs that way. But I'm glad to throw out there what I can.
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Joined: 12/2/2004
Posts: 1,775
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You trade the dude primarily when price breaks through the head:) Second way is to enter a smaller position if you can catch price near bottom of head, with a very tight stop just below very low of head. And then add-ons in stages if price goes up. For this conversation I'm looking at the head in your graphic and lumping it with other names such as flag/short term lateral consolidation/three-weeks-tight.
William O'Neil teaches that if the flag's (dragon head here) high point came off the bottom of the prior base 20% or more iwithin a couple of weeks or less, and then it trades relatively tight mostly sideways as it does in your example, that you should hold it and wait for increased odds of further price appreciation. So a measuring rule somewhat on length of pole and/or rapid advance over several days. If the flag is at new all time highs then all the better as there would now be no overhead...there are no losers as all that own are winners of a stock whose pattern is just getting off to a new start (because it evolved out of the longer lateral base below) and therefore increased odds that selling pressure is now lessened.
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Of course, David is the dungeon master when it comes to dragons.
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Joined: 6/6/2005
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Hey bcraig,
These are very simple to trade and that's why I like them. As long as you find your dragon in repose as it is now, and not fire spitting mad in mid flight. :)
Here is where your entry would be:
I have recently been reading even more about flags and penants and triangles. I agree with fpetry that for a better risk reward you could enter near support. My testing seems to hint that there is a negligable advantage to either style of entry so I still believe it comes down to preference which (in my opinion) isn't a bad thing.
And here is your stop:
On the chart there seems to be a natural line of support. Should that be taken out decisively I would consider the trade off.
Good luck!
David John Hall
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Joined: 12/2/2004
Posts: 1,775
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Davidjohnhall, your alternate option of entering on a break above the trendline vs. waiting for break of flag's high is also a good option, thanks for highlighting. The one thing we don't see in the chart that is so critical (imo) are the volume bars for each price bar shown.
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Joined: 2/5/2006
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theres no such pattern as a dragon.
if you mean flag or pennant, buy on a close outside the trendline. otherwise if it moves to fast and the risk:reward ratio is poor, wait for a low volume pullback to a support level.
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flags or pennants are also often formed at the midpoint of an overall move.
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QUOTE (funnymony) theres no such pattern as a dragon.
There is now! Right, David?
Flags and pennants didn't exist until someone named them such. Neither did Tobydad's Crowbar or the MCTTF (meat cleaver to the forehead = very bad down day on a stock you're already in). 
C'mon, let us have a little fun, funnymony.
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That's right, tobydad!
The dragons are here to stay -- they seem to be generating a little heat, but I'm guessing that's what they like. On a larger scale, society has been using stories and myths as a way of metaphorically interpreting and discussing ideas for a very long time. I can understand that a more traditional chartist would prefer the original name, and you certainly you won't find "The Dragon" in Edwards And Magee's Technical Analysis of Stock Trends, but I've read that book -- and it wasn't much fun! Next up, The Sleeping Dragon (or bear flag for funnymoney) -- let's see if some nice shorts can't be isolated.
David John Hall
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By the way, I'm not entirely certain that dragons are complete myth but there I go derailing another thread.
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What can I say... I have to agree with the comments of funnymony. Flags and pennants have been around for a lot longer than you and I. There is nothing new or different about them now.
You just took a reknown pattern and renamed with a different name. Flags now are Dragons (to you) as long as your zoom is right.
Of course david, dragons are here to stay - pennants and flag aren't going anywhere - are they?
Perhaps it would had been better to name those David's flags, or David's Pennants. But of course those pennants and flags don't belong to anyone but to the charts.
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Joined: 6/6/2005
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Thanks for your comments BigBlock. I appreciate you as a strong personality, andopinionated poster, and an informed trader. And more than that, you are completely entitled to your opinion as is funnymoney. But I would be remiss if I didn't take this time to point out that I didn't claim to have created any pattern whatsoever. I simply posted a LAYOUT that helped me visualize and find penants and flags. I even called the original thread "Finding Continuation Triangles And Wedges With Telechart". I didn't name the thread "Finding an amazing new pattern that I have just discovered which has never been traded in the life of the markets."
I simply named my LAYOUT (not the pattern) "the dragon" because that's what I thought of when I looked at it. And you know, now that I think of it a lot of traders give their patterns and ideas and layouts wacky names. The Turtle Trade, this is simply Donchian Channel breakouts. The Larry Williams "Oops" is simply a morning reversal. Even the Edwards and Mcgee flags and pennants weren't there original finds -- they were named "Coils" by Edward's or McGee's (can't remember off the top of my head) father in law -- who first documented them in his lifelong research. Edwards or McGee simply inherited them by marrige.
Anyway...back to the evolution of the dragon...as with most ideas that people find value in, it has been accepted, used, and discussed, and also critisized. Which I am also fine with. Heck, if an idea can't stand a little or a lot or total critisizm, then what good is it as an idea? Remember, this idea only has to benefit one person to be a good idea...and that's me. And judged on those grounds it has been a GREAT idea. I have been able to find triangles, test them and trade them successfully which was my goal from the beginning.
Also, which has given me a lot of pleasure, is the fact that "The dragon" layout has helped some of the traders here find and trade the coninuation patterns as I hoped it would. Maybe it helped them see entries and exits better...and allowed for correct position sizing. Maybe it also provided the enthusiasm to stick with a particular type of trade and learn all they could about them and master ONE profitable technique.
So fire up, Dragon Traders. And behold -- you're not trading anything new, but you are finding it in a unique way with (in my opinion) an interesting layout. Sometimes, that's all you need to keep moving forward.
David John Hall
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Can you Straddle a Dragon? AB
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Joined: 2/5/2006
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QUOTE (tobydad)
QUOTE (funnymony) theres no such pattern as a dragon.
There is now! Right, David?
Flags and pennants didn't exist until someone named them such. Neither did Tobydad's Crowbar or the MCTTF (meat cleaver to the forehead = very bad down day on a stock you're already in).
C'mon, let us have a little fun, funnymony.
oh ok, i'll mention it to bulkowski, so he can enter it in his next book "encyclypedia of chart patterns, 3rd edition" with credit given to davidjohnhall for the "dragon pattern".
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LOL funnymoney,
But I think I already established that I didn't create the pattern, just the layout. I'm pretty sure Bulkowski does not catalog layouts. You might want to reframe your ideas about the difference between a pattern and a layout. I thought i did a pretty good job of explaining it in my post above.
David John Hall
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AB, from what i know about straddles (not a lot) you should be able to straddle any dragon you want provided it's optionable. You might also to test out your strategy on this ride first:
David John Hall
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Joined: 10/26/2005
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Vary funny David, but I was referring to the options strategy. I’ll test this Dragon Theory as you all point them out. AB (there are enough future traders on the above Dragon)
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Registered User
Joined: 9/7/2005
Posts: 133
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AB,
I have been doing some options papertrading lately and it seems to me the straddle position works best when there has been a period of basing. I realize the dragon pattern does involve a period of basing, but I think these bases are rather short and the put/call pricing for a straddle would be out of kilter from the previous pop in price. So the calls would be inflated and puts deflated.
Given the fact the dragon pattern is based on a bullish outlook, I think you would be better served by either a vertical spread or simple call purchase. I am still learning the vertical so suggest googleing for further explanation.
Whoever knows this stuff better please chime in.
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Joined: 3/30/2008
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David,
Didn't you say that the number of these types of patterns increase and decrease with market patterns? If that is what you had said then shouldn't market direction concerns be heightened? Ok, so if I’m correct this wouldn’t be any revelation, but sometimes certain things need to be reviewed no matter how basic.
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hey Yinzer,
Yes, overall market direction is very important. For the time frame of these trades which is generally 1-5 days, I look at a 30 minute chart of the SPY. Well, I used to use the spy, now I use the ultra ETF SSO because there were so many bad ticks on the spy it was wreaking havock on the channels I use a quick guage for direction.
Here is a 30 minute chart...
Depending on what the last signal was, long or short, that's how i frame my market veiw.
I also look for the stronger sectors on the day and see if I have any trades in those sectors. I'm not saying I won't go long on a nice set up that's playing out well just because the overall direction is down, but I will be very selective.
If the market is short then I will trade the inverse ETFs.
There are many ways to assess market strength and direction, that's just the way I do it. For longer term trades I will look at weekly and monthly charts, and use the same channels.
David John Hall
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Registered User
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QUOTE (davidjohnhall) Thanks for your comments BigBlock. I appreciate you as a strong personality, andopinionated poster, and an informed trader. And more than that, you are completely entitled to your opinion as is funnymoney. But I would be remiss if I didn't take this time to point out that I didn't claim to have created any pattern whatsoever. I simply posted a LAYOUT that helped me visualize and find penants and flags. I even called the original thread "Finding Continuation Triangles And Wedges With Telechart". I didn't name the thread "Finding an amazing new pattern that I have just discovered which has never been traded in the life of the markets."
I simply named my LAYOUT (not the pattern) "the dragon" because that's what I thought of when I looked at it. And you know, now that I think of it a lot of traders give their patterns and ideas and layouts wacky names. The Turtle Trade, this is simply Donchian Channel breakouts. The Larry Williams "Oops" is simply a morning reversal. Even the Edwards and Mcgee flags and pennants weren't there original finds -- they were named "Coils" by Edward's or McGee's (can't remember off the top of my head) father in law -- who first documented them in his lifelong research. Edwards or McGee simply inherited them by marrige.
David John Hall
David it really doesn't matter to me - I know better. But I couldn't resist to bring up the fast, that a lot of folks may be confused. This is what you sais in the first posting of your original thread on the "Dragon", and I quote from your posting:
"Here is what the chart looks like. I call the pattern Dragon Candlestick because that's what it resembles to me when I see it. A Lockness monster/dragon about to pounce on profits."
I will leave it at that.
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Oh Bigblock. You're funny sometimes. If pointing out that sentance makes you feel better about life and trading and patterns and my posts then so be it. I refer you again to the title of the thread. I don't think anyone here thought I claimed to have discovered triangles and that was not my intention.
It's fine though. We all have our points of veiw. You might believe you're uncovering the great lie of the dragon, but what are you really fighting against? A group of traders here enjoy discussing something. that's all it is. It brings satisfaction and increased awareness.
But...
I reiterate to anyone else, that the dragon is a layout, not a pattern. When pennants and triangles show up in that layout they remind me of a dragon. And I love it. Everyone has their thing and this is mine, I'm probably as thrilled by the dragon as you are by the things you like about trading. Like options. Or the economy. Hey, there's something for everyone.
So good luck everyone. Let's see if we can't slay some more dragons next week.
David John Hall
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QUOTE (davidjohnhall) Oh Bigblock. You're funny sometimes. If pointing out that sentance makes you feel better about life and trading and patterns and my posts then so be it. I refer you again to the title of the thread. I don't think anyone here thought I claimed to have discovered triangles and that was not my intention.
It's fine though. We all have our points of veiw. You might believe you're uncovering the great lie of the dragon, but what are you really fighting against? A group of traders here enjoy discussing something. that's all it is. It brings satisfaction and increased awareness.
But...
I reiterate to anyone else, that the dragon is a layout, not a pattern. When pennants and triangles show up in that layout they remind me of a dragon. And I love it. Everyone has their thing and this is mine, I'm probably as thrilled by the dragon as you are by the things you like about trading. Like options. Or the economy. Hey, there's something for everyone.
So good luck everyone. Let's see if we can't slay some more dragons next week.
David John Hall
its a layout not a pattern? well ok, i'll go along with that.
lets see some more amr's then.
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Certainly David, you did a great job presenting the thread, and folks seem to be enjoying it a lot.
I just wanted to clarify - no harm intended.
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Joined: 12/31/2005
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David,
I commend you for dealing with Bigblock in polite manner. He has had over 1700 posts and the bulk of them have been dismissive or critical or hostile. Seldom does he contribute to the content of a thread regarding TA or metodology or process other than put downs. Even more seldom is his tone polite or postive. I don't think I could have responded as politely.
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Joined: 11/1/2005
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the way to trade a dragon, look for flame or smoke. this is a move up. tounge falling out down. is a down move. any questions ask David.
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Joined: 9/22/2005
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Tobydad
My model Dragon was PGN.
I was so impressed with the beauty of the pattern i didn't realize that Dragon is another name for Flag.
Tobydad, your scan. (OBV > AVG(OBV,30)) AND (STOC39.1 > 50) brings up a very large number of possiilities, most of which are pretty good dragons. What do you use to cut it down to a manageable number.
-----------------------------------------------------------------------------------------------------------------
Jim
Thanks fot the tip about smoke and fire,
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Hey if it makes money I will call it the cash register.
Thanks
diceman
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Diceman; LOL
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re: PGN: I like these dragons and their potential; but I'm still looking for a way to get a more certain entry for safety. I like probabilities, not percentages.
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Joined: 9/22/2005
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Tobydad
If you haven’t already done so, I suggest you check out Bulkowski’s ThePatternSite.com.
He has descriptions of and trading tips for 97 different patterns.
I have found him very helpful in establishing stops and targets.
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Tobydad
I now have an answer to my original question “How do you trade a dragon?”
And the answer is, “Pay attention to what the patterns there are and what they are telling you and where you are in relation to support and resistance, as well as what other indicators may be saying.” In other words, trade dragons the same way you trade other patterns.
Here are two pictures of the PGN dragon taken at different times.
The first one was taken on 08/02 when the lower of the two trendlines which define the dragon’s head and price touch the support line drawn from the highs of 04/18 and 06/25. This situation says “Be careful. There may be bad news coming,”
The next day the price broke down both of the trendlines the trendlines and continues to fall.
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