Masterclass: Learning Internet Trading on Forex and Stock Exchanges
Your attention is drawn to a very short-term trading strategy, based on the Heikin Ashi candlestick technique and described in an unconventional way by user jiva34 from the ForexFactory forum.
Anatomy of the ‘Dragon’ Trading System
The body of the ‘dragon’ consists of Heikin Ashi candles, the Heikin Ashi Smoothed indicator, and a three-period exponential moving average (EMA3), whose values are calculated from the Heikin Ashi Smoothed – hence the resemblance of the price chart to a dragon (see Figure 1).
The direction of the long-term trend is indicated by the 200-period EMA (EMA200). Horizontal support/resistance levels provided by the DailyWoodPivot indicator are also used here, which are almost identical to classic Pivot Points. Additional market conditions are monitored using the DSS Stochastic and MACD with crossing indicators.
Figure 1. View of the working chart for the trading strategy.
In this system, the readings of the Heikin Ashi indicator (HA) are very important. The essence of the trading system is to enter the market at the moment of the beginning of a reversal or the ‘spine bend of the dragon’.
Signals of the ‘Dragon’ Trading Strategy
A trade, as shown in Figure 1 above, will be checked against the following parameters:
- The Heikin Ashi indicator changes color to the opposite;
- The Heikin Ashi Smoothed moves downward and is located below its moving average (EMA3);
- The DSS Stochastic oscillator reverses near the overbought zone;
- The MACD is below its signal line;
- The trade opens in the direction of the slope of the heavy EMA(200);
- Special attention is paid to support/resistance levels, as the most effective price bounce occurs at these levels.
The market often changes direction, but not every time a change in direction is suitable for a trade. When the HA indicator changes color, the first signal for a trend reversal appears. It is important to note in which
MACD indicator With Crossing. DSS Stochastic indicates the ‘dragon’s’ intentions in the short term. Over time, you will begin to better understand the dragon’s actions, but in general, they are easily recognizable.
Entries/Exits from the Market According to the Trading System
According to the author, this strategy is preferable to use on short-term charts: M1, M5. There are no fixed StopLoss and TakeProfit levels; the exit from the trade is made as soon as a reverse signal comes from the indicators, for example, a change in the color of Heikin Ashi candles, the crossing of MACD lines, or the DSS Stochastic entering the opposite zone.
Processing signals requires careful attention and high demands to avoid opening during a range preceding a reversal. As the author expressed, ‘the dragon is not a soulless mechanical creature, it is alive and, like any creation, loyal to its master and always ready to serve…’.
FAQ
What is the ‘Dragon’ Forex trading strategy?
The ‘Dragon’ strategy is a short-term trading approach that uses Heikin Ashi and Heikin Ashi Smoothed indicators to identify potential trend reversals and market entries.
How does the ‘Dragon’ strategy work?
The strategy works by analyzing Heikin Ashi candle colors, the direction of the Heikin Ashi Smoothed, and other indicators like DSS Stochastic and MACD to determine when to enter or exit trades.
What are the key components of the ‘Dragon’ strategy?
The key components include Heikin Ashi candles, the Heikin Ashi Smoothed indicator, EMA3, and support/resistance levels from the DailyWoodPivot indicator, along with the DSS Stochastic and MACD for confirmation.
