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M W trading - Dragon pattern


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Hello my friends,

 

there was a very interesting conversation about certain method on this forum. And because certain name was mentioned the threads were switched off. For all you who are interested about these interesting M W patterns you can find it for free on these adresses:

 

http://strategy4forex.com/trading-on-the-forex-graphical-models-and-patterns/potterne-dragon.html

 

http://www.scribd.com/doc/8331452/Dragon-Pattern

 

I hope we can talk about these method without mention off certain person or method, because it is a big possibility that then these thread will be switced off too.

 

Somebody told me that this pattern is very familiar betwen market makers ;)

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You can use for exit rules when PA close above belowe non lag MA or you can use BB trading rules (when PA hits oposite BB, when PA close inside BB bands...), or you use stohastics... there are not stricly rules because I like to watch PA - so I also watch at S&R at larger TF. :)
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Hi ataata,

 

Good idea starting this thread :)

 

One thing I've spotted with W and M patterns particularly in the FF thread you posted is that folks are guessing that pattern may be forming and getting into a trade far too early only to get burned. I've also seen some posts where there hasn't really been a big enough move to warrant trying to find a W or M formation.

 

The patterns occur on any charts you look at, though because they appear at tops and bottoms, it's best to look for them on the lower level charts (15m, 5m or 1m) unless you want to wait days for a trade signal.

 

The best way to trade them I've found is to look for M formations at the top of a significant move and W formations at the bottom of a significant move - the key word here being "significant". If you've not had a reasonably big move before you can see a W or M forming then enter at your peril.

 

Also, don't try and jump into the trade too early. A well formed M or W which jumps out at you from the charts can only be seen clearly when fully drawn - guessing will often lead to bad trades. The best place to enter an M formation at the top of a move up is when price is coming down (and drawing the last part of the "M") and has just gone past the lowest point on the V which makes up the centre of the M formation. Similarly for entering W formations at the bottom of a move - wait until price has just gone up past the inverted V in the centre of the W formation.

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This "person" who has not been named for fear of this thread being deleted has said he was taught by a market maker from the Bank of India before he conveniently died. I have heard all I need to know about this person and his "system". I would feel more confident trading a Q shaped pattern on a chart - or better yet, the 27th letter of the English alphabet pattern.
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vfaelite,

 

I see this thread as being essentially about trading pattern formations. 'M' and 'W' formations have been around for years and I've traded them myself as mentioned above and in the right conditions work great.

 

The M and W are essentially "double top" and "double bottom" formations which are derived from the more usual trend-following 1-2-3 patterns, but can also be found under the same name.

 

Some patterns have stood the test of time and I've found can be uncannily accurate. Again, the crucial thing to consider is the conditions at the time the pattern appears. A very reliable pattern for example is the "pennant" or triangle formation. I've not traded this in downtrends too often, however I find that if you have a sudden burst of price up (creating a "flagpole") in EURUSD (the most traded pair which I normally follow), which is then followed by a triangle formation where the price movements are getting more and more compressed then as soon as price breaks out of that triangle it will normally be to the upside and give a nice profit.

 

Head and shoulders formations are recognised by all, however they can be some of the worst potentially forming patterns to attempt to trade - they're only normally blatantly obvious after the event. However if a break of the last shoulder of the head and shoulders coincides with a break of a trendline, then that can give a high probability trade to the downside.

 

A lot of the older textbooks mention these patterns and some more mathematical types have analysed them far to literally - i.e. as soon as price action appears to form a pattern then a score of how well the subsequent trade will do is recorded. Under these conditions most patterns would have 50% success rate whether long or short lol.

 

If we take note of the preceding price action, then patterns can be a great confirming indicator for a manual trader.

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