Hi All, and Happy Holidays!
Its Christmas Day and markets are closed, so now is as good a time as any to write this up. First off this is NOT the "Holy Grail", there is no such thing. Also, as with anything in forex it requires a alot of screen time and a good understanding of price action, support and resistance and money management. This is also NOT a complete trading system. The SnapDragon is merely a template which can be incorporated into a trading system. So lets get on with it, shall we.........
The idea for the SnapDragon was derived from part of the Ichimoku system. The Chinkou Span is a moving average of closing price shifted back 26 bars(22bars in modified versions). When the Chinkou Span is above the price bars/line it filters for longs and when it is below, for shorts. This is what it looks like:
As those who know me well can tell you, I like to play with things while trading. So I began playing with the idea of shifted price. But rather than shift price backward in time, why not shift it forward? I am also a big fan of the Fibonacci sequence so I began playing around with shifted price of varying amounts in the Fibonacci sequence ~0,1,1,2,3,5,8,13,21,34,55,89,144~ and so on.
I found that price shifted forward by 21 bars gave very "nice looking" results. In order to get an even better "look" I also decided that this shifted price should be "smoothed" just a tad. In order to achive this smoothing I simply used a 3-period EMA (exponential moving average)Shifted +21.
And this is what it looks like:
This is very similar to the Chinkou Span. To this day I still use this very basic chart to look at the Dow, S&P, Gold, Oil and other charts that I use to supplement my Forex trading. The shifted moving average serves as a resistance line, of sorts.
Now at some other point I began messing around with adding a 3x3 (3 squared)EMA. This is a 3-period EMA shifted +3. And now I had charts that looked like this:
I began trading this chart live with some very good results at times. And After some period of time I noticed the better signals were coming when certain configuration of the lines and price action occurred. To put it in a nutshell, when price was "trapped" in a void between the two shifted moving averages the trades did not tend to work as well as when price had broken free of both the lines.
After coming to this conclusion I tried to think of a way to visually block this "no trade" area off. What if I placed more 3EMAs shifting each 1 period more than the last? then , if I thickened each line some, so it began to look "solid"...... and behold! the SnapDragon was born!
I call it the "dragon" because it reminds me of those Chinese dragons you see at parades and festivals sometimes. Kinda looks a little crazy doesn't it? Ive added my favorite indicator (Wadda Attar Explosion) and some sweet spot lines, also an indicator that I modified to draw only 50% median lines, instead of both regular and 50%. I find price seems to want to track this 50% line in alot of cases. Here is a snapshot of the current version:
Now you might be asking, how the hell does it work? First it can work with any time frame on any pair or any instrument. My favorite time frames to trade with it are the 5m, 15m, AND 1HR. I like the lower spread pairs, well , because of the lower spread! For me these are the EUR/USD, USD/JPY, and the GBP/USD. Occasionally I will trade other pairs with not-so-low spreads such as the GBP/JPY, EUR/JPY, EUR/GBP. But for a person just starting out with the SnapDragon I would recommend sticking to the EUR/USD.
Here is a diagrammed chart of the 1hour EUR/USD. As you can see the rules are very simple.
The same entry rules would apply whether your trading a 5m chart or a daily. Exits are just a suggestion. You might have a simple take profit set at say 20 or 50 pips. Or you might use a trailing stop or an EA. like Swiss Army, to manage your stops. You could "scale out" of the trade at certain intervals of profit. This part is up to you. Again it is not my intention to provide a full system here, just the SnapDragon as a trading tool.
So here I give to you all my Christmas gift. 2 Templates containing the SnaDragon and some useful indicators that compliment it. One is Grey Background and One is Black. You may do whatever you wish with them (change colors, add other indicators, whatever you like) I just ask that the EMA set be called a SnapDragon :-)
http://www.whiskers-and-tails.com/forex/SnapDragon.zipSo that's it for now. I do plan on making some videos showing the SnapDragon during Live trading sessions. I hope you will look forward to them, in the very near future.
Merry Christmas and Happy Trading to you all!
~Snap
http://snapcracklepip.blogspot.com/http://www.livevideo.com/SnapCracklePiphttp://www.ircforex.com
Forex Live Blog: DEC 2, 2008 
