Great Info! Kudo's!
Dragon pattern
- Thread starter Pekelo
- Start date
Here is the upside down dragon from Friday, posted live (while it was happening) in the ES thread:
Upside down dragon indicating a 863ish 3rd top. Height is 7 pts, Failure was at 857.... (reference to futures prices) This chart is showing the cash:
The top was at 863.75 almost exactly the 857+7 projected value. The drop from there was rather small, only went down to 861 before the upmove continued. Again, the dragon doesn't predict the size of the drop/rally from the 3rd top/bottom.
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It occured to me that this dragon pattern can be used to determine what kind of market we are in. In the beginning of the thread I mentioned that in the upside down version the 3rd top comes around 80% of the Height. This was true in the bearmarket of the begining of the year.
But since we are in rally mode the 3rd top comes from the Failure at exactly the size of Height. So, my theory is that when this happens we are in bullphase, and when the 3rd bottom is coming at the almost exact size of the Height, then we are in a bear phase...
Upside down dragon indicating a 863ish 3rd top. Height is 7 pts, Failure was at 857.... (reference to futures prices) This chart is showing the cash:
The top was at 863.75 almost exactly the 857+7 projected value. The drop from there was rather small, only went down to 861 before the upmove continued. Again, the dragon doesn't predict the size of the drop/rally from the 3rd top/bottom.
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It occured to me that this dragon pattern can be used to determine what kind of market we are in. In the beginning of the thread I mentioned that in the upside down version the 3rd top comes around 80% of the Height. This was true in the bearmarket of the begining of the year.
But since we are in rally mode the 3rd top comes from the Failure at exactly the size of Height. So, my theory is that when this happens we are in bullphase, and when the 3rd bottom is coming at the almost exact size of the Height, then we are in a bear phase...
..and another one, showing it on the NDX chart:
Height was 19 pts, the 3rd bottom came 20 pts from Failure. On the SPX chart it overshot the projected bottom by 2 points, nevertheless bounced from there nicely...
Edit: Here is the SPX chart showing the even more advanced rally from the 3rd bttom:
Height was 13 pts, the 3rd bottom came in at 15 pts, probably because we were recovering from the pre-open gapdown...
Height was 19 pts, the 3rd bottom came 20 pts from Failure. On the SPX chart it overshot the projected bottom by 2 points, nevertheless bounced from there nicely...
Edit: Here is the SPX chart showing the even more advanced rally from the 3rd bttom:
Height was 13 pts, the 3rd bottom came in at 15 pts, probably because we were recovering from the pre-open gapdown...
Here is a variation of the NDX chart posted 3 days ago. This time it is the SPX 10 days/hourly chart:
Height: 50 pts
Failure: at 25 pts (perfect)
3rd top: 40 pts from F. (80% only)
Since we only went up 80% of the expected Height from Failure, this upside down dragon might just signals the end of the bullrun, as I theorized a few posts ago. Another reason for not going higher was the upper BB, not shown on this chart...
Height: 50 pts
Failure: at 25 pts (perfect)
3rd top: 40 pts from F. (80% only)
Since we only went up 80% of the expected Height from Failure, this upside down dragon might just signals the end of the bullrun, as I theorized a few posts ago. Another reason for not going higher was the upper BB, not shown on this chart...
we 'll see if this photo comes upQuote from Pekelo:
By popular demand I explain in this thread the dragon pattern with examples. If you still have questions (although you shouldn't) just ask.
Q: What is the dragon pattern?
A: It is a failed double bottom pattern, where a failure occurs around the half of the W's height after the 2nd bottom and falls lower making a 3rd bottom, where it bounces.
Q: Why is it called a dragon?
A: Because according my vivid imagination, it reminds me of a dragon. See the picture below. If it bothers you, you can call it "The Pekelo".
Q: Could you explain it more?
A: Here are the definitions, a W refers to a double bottom, because it looks like one.
Height: The price distance between the 1st bottom and the middle of the W.
Failure: The point after the 2nd bottom where the rally stop advancing and starts to fail. Usually happens around half of the Height counted from the 2nd bottom, quite often at the SMA line.
3rd bottom: The price drop from the Failure point is app. the same as the Height.
Q: What timeframe do you use it with?
A: Pretty much with any. I will show examples of 5 mins, daily and weekly.
Q: So how do you use it?
A: Once a double bottom happens, you have to be aware that it might fail. So assuming you are long from the 2nd bottom, you are watching what happens at the half of the Height, and if a failure occurs, you switch to shorts. Then you do the quick math and you will have a 3rd bottom expectation where you switch back to long for a bounce.
Q: How big a bounce?
A: No way to tell. It can be just a few points or it can signal the bottom of a downtrend, just like it did last year.
Q: Double bottoms-double tops. Does it have a reverse version?
A: Yes, I call it upside down dragon.
Q: What is it?
A: An upside down dragon is a failed double top (M) pattern where after the 2nd top a failure occurs in the downmove and a 3rd higher, very shortable top occurs.
Q: Is there any difference between between these dragons?
A: The only thing is with the math, it tends to move only 80% of the Height from the point of Failure.
Q: OK, can you post a chart?
A: Sure....
Here is the current daily chart. The Height was 60+ points (distance between 1st bottom and middle of W), and this is exactly how much we dropped from the point of Failure at 840 (also at the SMA) to the 3rd bottom. From there we bounced so far 9 points. Again, the size of the bounce can be anything....
Here is the dragon visualization:
And here is an upside down dragon:
Note here that the distance from the Failure to the 3rd top is about 80% of the Height...