Every time the dragon shoots fire, run behind a rock. You will get the timing correct if you practice. Soon you will know exactly when to run. When it shoots a fire ball (not a fire flame or anything else) and if you have successfully got behind a rock, it will hit the rock which will turn red. Do it again and the rock will break. One of the rocks has 3-way shot inside. Take it and fire the 3-way shot at the dragon to kill it quickly.

Instead of allowing the dragon to destroy the rock, simply run behind the first middle rock to get the 3-way shot. Keeping the rock intact makes it a good place for hiding to avoid the shockwave created when dragon smacks the ground.