
In this article, we will discuss what the shooting star pattern is, how to recognize it, and how you can use it in your trading. Let’s get started!
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2020-03-03 • Updated
Information is not investment advice
Everybody knows a fairy tale about the heroic orphan child Dorothy Gale and her little dog Toto whose house was blown into the Land of Oz by a tornado.
While we don’t know the exact reason for such an exotic strategy name, we may suggest that it may bring you the size of profits as unexpected as the Kansas house that has landed on the wicked witch. So, what exactly should you know before implementing this strategy?
Timeframe: Daily, H4
Currency pairs: The system is widely used for trading EUR/JPY, but it also works well with other currency pairs.
Tools: Bill Williams’ Awesome Oscillator with standard settings, Accelerator Oscillator and Stochastic Oscillator with %K period = 5, %D period = 3 and slowing = 4. We recommend implementing a Stochastic Oscillator to the Accelerator one.
To do that, you don’t need to download a specific indicator. All you need is to choose the accelerator oscillator in the menu of your MT (Insert – Indicators – Oscillators – Accelerator Oscillator). Be sure that your navigator window is open (View – Navigator). At the final step, you need to hold out the Stochastic oscillator from the Navigator window to the Accelerator one (see the picture below). Easy as it is!
Why do we need so many indicators for this strategy? To make the magic work, we need to be sure about the reversal. That is why the signals require confirmation.
While the Accelerator Oscillator reacts to the change of the move quicker than the Awesome one, their combination makes a signal more reliable. The Stochastic Oscillator shows the overbought and oversold levels. These levels are important for determining entry and exit points.
Now, let’s learn the basic algorithm.
Note: we don’t open a position if Stochastic crosses the 20 line, but Accelerator Oscillator doesn’t change its color.
Let’s have a look at the daily chart of EUR/JPY. There we can notice that all the conditions are met. When Stochastic crossed the 20 level from bottom to top, we did not rush to enter the market immediately because of the red Awesome Oscillator. When it finally turned green, we opened the position at the opening price of the next candlestick at 126.24. We waited several days for Stochastic and Accelerator indicators to cross above the 80 level and took profit at 129.3. We placed stop loss at 125.65, slightly above the significant support.
Note: we don’t open a position if stochastic crosses the 80 line, but Accelerator Oscillator stays green.
Let's consider the daily moves of EUR/JPY once again. On July 4, 2011, the Stochastic indicator crossed above the 80 level. We waited until both AO and AC turned red and entered the market at 116.97. We placed stop-loss slightly above the resistance level at 118.18. After that, we trailed our stop and followed the movement of a price. When Stochastic formed a crossover within the oversold zone and accelerator oscillator tested the 20 level we decided that it would be safe to close the position at 105.2. As a result, we earned a great amount of 1177 pips!
During the analysis, we found out that a combination of three oscillators may indeed bring very good results. Nevertheless, you should always make reasonable decisions and trail your stop losses.
In this article, we will discuss what the shooting star pattern is, how to recognize it, and how you can use it in your trading. Let’s get started!
What do we do when the price enters uncharted territory with no previous lows or highs to serve as support and resistance levels? Here is your guide into the unknown.
Let us find out what are the basic elements of price action and what you need to master to trade this system.
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