Hammers & Stars Strategy

The Hammers & Stars Strategy indicator identifies and trades basic hammer and shooting star candlestick patterns to capture potential market reversals. This strategy is designed for versatility across various markets, with a particular focus on daily forex charts, and includes customizable filters for volatility, trend direction, and risk management.

Usage

The Usage section describes how the script can be used, particularly in identifying high-probability reversal setups. The tool identifies a "Hammer" (bullish) when the candle's body closes in the upper portion of its range, and a "Shooting Star" (bearish) when the body closes in the lower portion.

Examples of usage include:

• Trend Filtering: Users can enable the EMA Filter to ensure they only take long setups above a specific moving average or short setups below it.
• Volatility Qualification: By using the ATR filters, traders can avoid candles that are too small to be significant or too large to provide a reasonable risk-to-reward ratio.
• Automated Execution: The script is optimized for alerts, allowing for integration with third-party automation tools like AutoView for Oanda, facilitating automated position sizing and execution.

Details

The script executes based on specific candlestick geometry and volatility conditions. A valid hammer or star is determined by the "Fib Level" setting, which defines the required ratio between the candle body and its wick. For instance, a 0.333 setting requires the body to be within the upper or lower 33.3% of the total candle range.

The strategy also incorporates dynamic stop-loss placement. The stop loss is calculated based on a multiplier of the Average True Range (ATR) and is placed relative to the candle's low (for longs) or high (for shorts), or the previous candle's extremes, whichever is more conservative. It includes an integrated backtester display that calculates win rate, average risk-to-reward, and total pip return.

Settings

Strategy Settings

• >= ATR Filter: The minimum size required for an entry candle relative to the current ATR.
• <= ATR Filter: The maximum allowable size for an entry candle relative to the current ATR.
• Stop Loss ATR: The multiplier applied to the ATR to determine the stop loss distance.
• R:R: The desired Risk:Reward ratio used to set profit targets.
• Fib Level: Defines the threshold for the candle body position (e.g., 0.333 requires the body to be in the outer third of the candle).

Filter Settings

• EMA Filter: Sets the length of the EMA used for trend filtering; setting this to zero disables the filter.
• Start/End Date Filter: Defines the specific time range for the strategy to execute trades during backtesting.

Backtester Settings

• Draw Stats: Toggles the visibility of the on-chart performance table.
• Use Fixed Fractional Qty: Enables position sizing based on a fixed percentage of the account risk.
• Risk Per Trade: The percentage of account balance to risk on each individual trade.

FAQ

How does the Fib Level affect trade signals? The Fib Level determines how strict the "wick" requirement is. A lower value requires a longer wick relative to the body, ensuring the pattern represents a more significant rejection of price.

Can I use this strategy on stocks or crypto? While optimized for Forex daily charts, the strategy is mathematically applicable to any market. Users should adjust the ATR and Fib Level settings to suit the specific volatility profile of the asset being traded.

How do I access the Hammers & Stars Strategy? You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.