Legends say that wishing upon a shooting star makes the wish come true. In trading a Shooting star is a bearish candlestick with a long upper shadow, little or no lower shadow, and a small real body near the low of the day. It appears after an uptrend. Said differently, a shooting star is a type of candlestick that forms when a security opens, advances significantly, but then closes near the open again.
The shooting star strategy three or more consecutive rising candles with higher highs. The strategy has two advantages: simplicity and visuality. For a candlestick to be considered a shooting star, the formation must appear during a price advance. Also, the distance between the highest price of the day and the opening price must be more than twice as large as the shooting star’s body. There should be little to no shadow below the real body.
Trading at the Binomo terminal with Shooting Star strategy is easy and straightforward.
How to setup your chart?
Shooting stars indicate a potential price top and reversal. The shooting star candle is most effective when it forms after a series of three or more consecutive rising candles with higher highs. It may also occur during a period of overall rising prices, even if a few recent candles were bearish.
Select the candlestick view chart and check for the current trends.
At the beginning, shooting star strategy was applied to trading commodities but later it proved its effectiveness in working with currency pairs. It is not recommended for cross-rate trading. The best choice is to trade currency pairs: EUR/USD or GBP/USD.
Do not worry about the timeframe: Shooting Star works with any timeframe. Most traders prefer 1-minute period because it allows to track signals to buy options and apply Martingale.
How to trade with Shooting Star Strategy
The name of the strategy is speaking for itself. Make your wish come true. Following the advance, a shooting star opens and then rises strongly during the day. This shows the same buying pressure seen over the last several periods. As the day progresses, though, the sellers’ step in and push the price back down to near the open, erasing the gains for the day. This shows that buyers lost control by the close of the day, and the sellers may be taking over.
You can see the formation of shooting candles with your own eyes. However, if you are a beginner, you should use additional tools for detecting the market trends.
Here is algorithm:
- CALL option is done on an uptrend after the formation of the third candle Each next minimum should be higher than the previous one. The deal opens on the next candle after a reversal.
- PUT option is done on a downtrend after the formation of the third peak (extreme maximum). Each next maximum should be below the previous one. The deal, as in the previous case, opens on the next candle after the formation of the extremum.
The expiration period should be less than the time of formation of two candles.
The uptrend accelerates just prior to the formation of a shooting star. The shooting star shows the price opened and went higher (upper shadow) then closed near the open. The following day closed lower, helping to confirm a potential price move lower. The high of the shooting star was not exceeded and the price moved within a downtrend for the next month. If trading this pattern, the trader could sell any long positions they were in once the confirmation candle was in place.
Conclusion
The Shooting Star strategy works great but there are some limitations. Remember, that one candle isn’t all that significant in a major uptrend. Prices are always gyrating, so the sellers taking control for part of one period—like in a shooting star—may not end up being significant at all.
This is why confirmation is required. Selling must occur after the shooting star, although even with confirmation there is no guarantee the price will continue to fall, or how far. After a brief decline, the price could keep advancing in alignment with the longer-term uptrend.
Utilize stop losses when using candlesticks, so when they don’t work out your risk is controlled. Also, consider using candlesticks in conjunction with other forms of analysis. A candlestick pattern may take on more significance it occurs near a level that has been deemed important by other forms of technical analysis.
In addition, working with Shooting Star strategy on lower timeframes you should apply the Martingale.
