Dragon Catching Over Resistance (过顶擒龙) — Complete Implementation Specification

Author: Wang Ning (王宁) Original Language: Chinese (Simplified) Market Focus: A-shares (Shanghai & Shenzhen Stock Exchanges) Trading Style: Breakout trading through major resistance levels with momentum follow-through

Table of Contents

  1. Core Philosophy

  2. The "Over the Top" Concept

  3. Resistance Level Classification

  4. Breakout Qualification Criteria

  5. Volume Confirmation System

  6. The Dragon Pattern — Multi-Stage Breakout

  7. Pre-Breakout Accumulation Phase

  8. Entry Techniques

  9. Follow-Through Analysis

  10. Position Management

  11. Stop-Loss Architecture

  12. Exit Strategy and Target Setting

  13. Market Environment Filters

  14. False Breakout Identification

  15. Key Quotes and Principles

1. Core Philosophy

Wang Ning's "Dragon Catching Over Resistance" methodology is built on a single powerful observation: stocks that successfully clear major resistance levels — particularly prior significant highs — undergo a fundamental transformation in their supply-demand dynamics. Overhead supply is absorbed, trapped sellers are freed, and the stock enters a zone of minimal resistance where momentum can accelerate rapidly.

The "dragon" metaphor is deliberate: a stock that clears resistance is like a dragon breaking through the clouds — once above, it can soar freely. The trader's job is to catch the dragon at the moment of breakthrough.

Key principles:

2. The "Over the Top" Concept

"Over the top" (过顶) refers specifically to price closing above a significant prior high. This is distinguished from merely touching or piercing the high intraday.

2.1 Definition of "Over the Top"

A valid "over the top" event requires:

  1. The stock must close above the prior significant high (intraday piercing does not count)
  2. The close must be above the high by a margin of at least 1% (to filter noise)
  3. The breakout must occur on volume confirmation (see Section 5)
  4. The prior high must have been established at least 20 trading days prior

2.2 Types of "Tops" to Clear

Top Type Definition Signal Strength
Historical all-time high The highest price the stock has ever traded Strongest
52-week high Highest close in the past 250 trading days Very strong
Significant swing high A peak that initiated a decline of >= 15% Strong
Minor swing high A peak that initiated a decline of 5-15% Moderate
Consolidation ceiling Upper boundary of a trading range Moderate

2.3 The Psychology Behind "Over the Top"

When price approaches a prior high, three groups of market participants are affected:

The breakout succeeds when new demand overwhelms the supply from trapped holders, and short covering adds fuel.

3. Resistance Level Classification

3.1 Primary Resistance (一级阻力)

3.2 Secondary Resistance (二级阻力)

3.3 Tertiary Resistance (三级阻力)

3.4 Compound Resistance

When multiple resistance levels converge within a tight price zone (within 3%), the breakout through this compound resistance is exceptionally powerful. The more layers of resistance cleared simultaneously, the stronger the signal.

4. Breakout Qualification Criteria

Not every price move above resistance qualifies as a dragon-catching opportunity. The breakout must meet strict criteria:

4.1 Candle Quality

4.2 Decisiveness Score

decisiveness = 0
if close > prior_high * 1.01:  decisiveness += 1
if close > prior_high * 1.03:  decisiveness += 1
if body_pct >= 0.05:           decisiveness += 1
if close == day_high:          decisiveness += 1
if gap_up and not filled:      decisiveness += 1

# Minimum score for trade: 3

4.3 Context Requirements

5. Volume Confirmation System

5.1 Breakout Day Volume

The breakout day must show convincing volume:

Volume Level Interpretation Action
< 1.5x 20-day avg Insufficient — likely false breakout No trade
1.5x - 2.0x avg Minimum confirmation Trade with reduced size
2.0x - 3.0x avg Standard confirmation Full position
3.0x - 5.0x avg Strong confirmation Full position, higher conviction
> 5.0x avg Possible climax / distribution Caution — may be blow-off

5.2 Pre-Breakout Volume Pattern

The ideal volume pattern before the breakout:

  1. Declining volume during the consolidation/base phase (supply drying up)
  2. Gradual volume increase in the 3-5 days before the breakout (accumulation)
  3. Volume explosion on the breakout day itself

5.3 Post-Breakout Volume Follow-Through

6. The Dragon Pattern — Multi-Stage Breakout

Wang Ning's signature pattern is the multi-stage dragon breakout, which unfolds in distinct phases:

6.1 Phase 1: The Coiling Base (蛰伏期)

6.2 Phase 2: The Initial Thrust (试探期)

6.3 Phase 3: The Decisive Breakout (突破期)

6.4 Phase 4: The Acceleration (加速期)

6.5 Phase 5: The First Pullback (回踩期)

7. Pre-Breakout Accumulation Phase

7.1 Signs of Institutional Accumulation

Before the breakout, informed money accumulates positions within the base. Look for:

7.2 Base Quality Scoring

base_score = 0
base_duration = days_in_consolidation()

if base_duration >= 60:     base_score += 2
elif base_duration >= 30:   base_score += 1

price_range = (base_high - base_low) / base_low
if price_range <= 0.15:     base_score += 2
elif price_range <= 0.25:   base_score += 1

if volume_trending_down():  base_score += 1
if higher_lows_in_base():   base_score += 1
if MAs_converging():        base_score += 1

# base_score >= 5: excellent base
# base_score 3-4: acceptable base
# base_score < 3: weak base, reduce conviction

8. Entry Techniques

8.1 Breakout Day Entry

8.2 Next-Day Open Entry (Preferred)

8.3 Pullback to Resistance Entry (Conservative)

8.4 Layered Entry (Advanced)

Split the intended position into three parts:

  1. 1/3 on breakout day or next morning
  2. 1/3 on first pullback to the breakout level
  3. 1/3 on confirmation of the pullback hold (bounce candle with volume)

This approach reduces average cost and confirms the breakout quality.

9. Follow-Through Analysis

After the breakout, the quality of follow-through determines whether to hold or exit.

9.1 Strong Follow-Through (Hold / Add)

9.2 Neutral Follow-Through (Hold / Tighten Stops)

9.3 Weak Follow-Through (Exit or Reduce)

10. Position Management

10.1 Initial Position Size

Based on the quality score of the breakout:

Score Components Met Position Size
5+ (base + volume + candle + MA + sector) 25-30% of capital
3-4 components 15-20% of capital
2 components (minimum threshold) 10% of capital

10.2 Adding to Winners

10.3 Portfolio Rules

11. Stop-Loss Architecture

11.1 Initial Stop

11.2 Time-Based Stop

11.3 Pattern-Based Stop

11.4 Progressive Stop Tightening

function update_stop(position, current_price):
    gain = (current_price - position.entry) / position.entry

    if gain >= 0.20:
        position.stop = max(position.stop, position.entry * 1.10)
    elif gain >= 0.10:
        position.stop = max(position.stop, position.entry * 1.03)
    elif gain >= 0.05:
        position.stop = max(position.stop, position.entry)

    # MA trailing (when in profit)
    if gain >= 0.15:
        position.stop = max(position.stop, current_ma10)

    return position.stop

12. Exit Strategy and Target Setting

12.1 Measured Move Target

The expected move after a breakout is estimated by the depth of the prior base:

target = breakout_level + (breakout_level - base_low)

For example, if a stock breaks out at 20 yuan from a base with a low of 15 yuan, the target is 25 yuan (a 25% gain from the breakout).

12.2 Scaling Out

12.3 Climax Top Signals (Exit All)

Exit the entire remaining position if:

13. Market Environment Filters

13.1 Bull Market Conditions (Full Aggression)

13.2 Neutral Market (Standard)

13.3 Bear Market (Defensive / Sidelined)

14. False Breakout Identification

14.1 Warning Signs During Breakout

14.2 Warning Signs After Breakout

14.3 The "Bull Trap" Pattern

The most dangerous false breakout:

  1. Stock breaks above resistance on moderate volume (looks legitimate)
  2. Follows through for 1-2 days with small gains
  3. Suddenly reverses on a large bearish candle
  4. Gaps below the resistance level
  5. Former "breakout buyers" become trapped holders — creating a new wave of supply

Defense: strict use of the stop-loss architecture prevents catastrophic loss on bull traps.

16. Key Quotes and Principles

"A stock that breaks through its prior peak is a dragon freed from its chains. Do not hesitate — mount the dragon or watch it fly away."

"Resistance is not a wall; it is a gate. The gate is heavy and requires great force to open. That force is volume. Without volume, the gate stays shut."

"The quality of the base tells you everything about the quality of the breakout. A deep, quiet base produces a powerful, sustained breakout. A shallow, noisy base produces a false start."

"Do not buy the breakout attempt. Buy the breakout confirmation. Attempts fail more often than they succeed — but confirmed breakouts follow through at a high rate."

"The first pullback to the breakout level is the gift the market gives patient traders. If the level holds, you have confirmation that the dragon is real."

"When multiple resistance levels converge at one price, the force required to break through is immense — but so is the thrust that follows. Compound resistance breakouts are the highest-probability trades."

"In a bear market, even dragons fall from the sky. Never fight the market environment. The dragon-catching method works best when the market tide is rising."

"The measured move is not a guarantee; it is an expectation. Manage positions dynamically — let the market tell you when it is done, not your calculator."

"False breakouts are the tax you pay for trading breakouts. Accept them, control the loss with stops, and move on. Five successful dragon catches easily pay for ten false breakouts."

This specification synthesizes the core methodology from "过顶擒龙" by Wang Ning, structured as an actionable implementation guide for breakout trading strategies in the A-share market.