The Pinocchio strategy is a specific type of candlestick pattern, with candles that have oversized wicks paired with small bodies.

The strategy is named after Pinocchio as it is a reflection of the story. Whenever Pinocchio told a lie his nose grew. This strategy forces you to look at the market and understand when an asset is moving in one direction and has been for a while, but is actually ready to go in the opposite direction even though this is against the trend of the market.

The Pinnochio strategy can be used in both binary options and forex trading.

That is what you are looking for with this strategy: a small body, and a long shadow (nose). Other names for this pattern are: the pin bar, shooting star, the hanging man, the hammer or the inverted hammer.

When the shadow (nose) is longer than the body that is an indication of a “lie” in the market. It signals that a trader should trade the opposite way to the direction of the shadow.

READ: The Ultimate Guide To Trading Synthetic Indices

Conditions For The Pinnochio Strategy

• Time frame to analyze: 1 hour – 4 hours
• Expiry time to use: 5 minutes – 15 minutes
• the pin bar must be preceded with an uptrend.

How To Trade Pinnochio Strategy

As a binary options strategy, the Pinnochio bar can be used for entering the markets. You can either trade a lower or put option as soon as the pin bar closes.

Or you can wait for a 50% retracement of the pin bar and then trade the put option. You should extensively practise this strategy to see which entry method suits you.

Precautions With The Pinnochio Strategy

• Do not be tempted to use the 60-second expiry time for your options if using this strategy!
• Do not trade in a neutral (directionless) market if using this strategy. For a true Pinocchio signal, an uptrend must form. Trying to execute this strategy in a neutral market increases your risk a long way

See more binary options strategies here.