Pin bars are candlestick patterns that show you when the market is lying to you. They can help you trade reversals or breakouts with confidence. This guide will teach you how to recognize them, deal with them, and make money off of them. You will also see a setup example with entry, take-profit, and stop-loss levels. Ready to pin down the market? Read on! 📑
What is the Pin Bar Trade Strategy?
The Pin bar, short for “Pinocchio Bar,” is a popular and highly reliable candlestick pattern. It’s named after the famous wooden puppet, Pinocchio, because it essentially tells us when the market is lying or telling the truth. Here’s how it works:
Pin bars are characterized by a long tail(or shadow)and a small body, resembling a pin sticking out of the chart. The length of the tail relative to the body is what makes them special. A long tail signals a powerful rejection of a price level and it often foreshadows a reversal.
But sometimes it acts as a trend continuation formation. In other words, it shows that there is a strong reaction to the price.
It gives the opportunity to understand whether the trend continues or reverses. The color of Pin bars isn’t important, whether they’re red or green doesn’t matter. We consider their wicks, not their colours.
In this table, you can find the essential information about the topic in a nutshell. It will help you understand the main ideas and concepts better.
Key Point
Description
Definition
Pin Bars are candlestick patterns with a long tail and small body, indicating strong market reactions and potential trend reversals or continuations.
Pin Bars are significant for identifying potential major market movements and are versatile, applicable across various timeframes.
Trading Strategies
Includes reversal and continuation pattern trading, with strategies for entry, stop-loss, and take-profit placements.
Common Misconceptions
Misconceptions include over-reliance on Pin Bars as infallible indicators and neglecting the use of stop-loss orders.
Trading Tips
Tips include considering the momentum and freshness of the supply/demand area, focusing on high time frames, and not relying solely on the color of the Pin Bar.
the summary table
Types of Pin Bar:
A bullish Pin bar has its long shadow pointing down, indicating that sellers pushed prices lower, but buyers were able to push prices back up, suggesting a potential rise in prices.
On the other hand, a bearish Pin bar has its long shadow pointing up. This suggests that buyers pushed prices higher, but sellers came in strong and pushed prices back down, indicating potential falling prices.
Why Does It Matter?
Let’s kick things off with the burning question: Why should you care about these spikes? The reason for this is that they are one of the best methods for trading price action. They are clearly indicating to you where prices are headed. When you see a pin bar, it’s like a loud alarm saying, “Watch out! A major move is coming!”
Spikes, with their distinct formations, reveal the stories of price movements. They reflect rejection, hesitation, and potential reversals with remarkable precision. Trading with tails, boosts your confidence, as you have a clear reason for entering a trade.
When used correctly, they can lead to trades with incredible risk-reward ratios. Trading isn’t just about numbers; it’s about understanding market sentiment and managing risks. These techniques, with their clear-cut signals, help you do just that.
You’ll find them on all timeframes, from the 15-minute chart to the monthly chart, making them versatile tools for traders of all styles.
How to Trade Using the Pin Bar Strategy?
Let’s cut to the chase: How can you use it to your advantage? Here are 2 strategies to help you:
Reversal Pattern Trading:
How to trade reversal pinbar?
When you spot it at the end of a strong trend, it’s a sign that the trend may be running out of steam. Use this as an opportunity to enter a trade in the opposite direction and ride the reversal wave.
Stop Placement: They are excellent for setting stop-loss levels. Thanks to the distinct tail-to-body ratio, it allows you to set tight stop-loss levels, minimizing potential losses. Place your stops just beyond the tail to protect your capital effectively.
The buying and selling strategy can be approached in two ways:
Take Immediate Action: As soon as it forms, you can trade.
Wait and See: In general, the price tends to test around 50% of the Pin bar. Therefore, after this pattern emerges, it’s usually more profitable to switch to a smaller time frame and initiate a trade at approximately the 50% mark. This approach tends to yield higher profits.
Discover the secrets of reversal structures and how to profit from them in these chapters:
They can also signal a temporary pause in a trend before it resumes. In such cases, wait for confirmation and jump back into the trend, maximizing your profits.
Stop-Loss (SP):Tails are excellent for setting stop-loss levels. Thanks to the distinct tail-to-body ratio, pin bars allow you to set tight stop-loss levels, minimizing potential losses. Place your stops just beyond the tail of the bar to protect your capital effectively.
Take-Profit (TP): If you caught the trend reversal, you will be rewarded with a mind-blowing profit. However, for a safer trading journey, it’s advisable to take your profit at the first swing point. This approach helps mitigate risk.
Additionally, you should aim for zones that are formed based on other price action concepts. These zones often serve as reliable targets.
Becoming a Pin Bar Jedi
By now, you’re probably thinking, “How do I become a Pin Bar Jedi?” It’s simple: practice and education. It’s time to take action. Create a trading journal.
Start by conducting backtests on different currency pairs, beginning with high time frames. Determine your success rate and profit ratios from these backtests. Keep a trading journal to track your progress and learn from your mistakes.
Railroad Track Pattern is a kind of lower time view of pin bars. I recommend you review it together.
This practice not only allows you to test your skills but also boosts your confidence as you gain practical experience.
The value proposition here is clear: by mastering pin bars, you’re not just learning a trading strategy; you’re equipping yourself with a powerful tool that can significantly improve your trading profits.
The interplay between pinbars and Engulfing Patterns can serve as a robust confirmation signal in trading. By understanding the intricacies of these two structures, you can effectively combine them for more strategic decision-making. Remember, knowledge is power!
🖥 This video will show you how the method works and help you practice it.
Top 6 Tips for Trading the Pin Bar:
Momentum. It is necessary to follow the size of the bars formed before Pin bar very carefully. For example, while candlesticks with high momentum were coming in green, a pin bar was formed at that time. This would be a very risky trade. In the Pin bar reversal strategy, weakening bars work, not momentum bars.
Freshness of the supply/demand area or flip zone. If the price is visiting that area for the first time, that area is fresh. Fresh supply/demand or flip areas are very likely to react. If it is not fresh, pin bars in this zone generally move in the direction of the trend as a trend continuation formation.
In a sequence of Pin Bar formations, each fresh Pin Bar serves as a confirmation of the previous one.However, the necessary confirmation to open a trade is the breaking of the region with a voluminous candle. The zone drawn considering these candlesticks starts to weaken when tested more than twice, and it breaks in the opposite direction of the previous price surge.
They are important, but only those that occur in important zones are respected.
They in a high time frame are safer.
The color isn’t of significance, do not trade by color.
Common Misconceptions When Trading with Pin Bar:
They Never Lie!
Wouldn’t it be wonderful if Pin Bars were always honest, like your grandma? But alas, they’re not infallible truth-tellers. Pin Bars can fib just like the best of them. They might give you a signal, but it’s not a guarantee. So, trust them as much as you’d trust a politician’s promise.
No Need for Stop Loss with Pin Bars.
Some traders think that when a shadow shows up, it’s like the cavalry arriving to rescue them from any losses. But that’s a bit like assuming you’re invincible because you’re wearing a superhero costume. Pin Bars are not a get-out-of-losses-free card. Always use stop-loss orders to protect your sanity and your wallet.
Pin Bars Can Predict the Future!
Here’s a brain teaser for you – can Pin Bars predict tomorrow’s weather? No? Well, they can’t predict the market’s future either. They provide clues, not crystal balls. So, if you’re expecting they to reveal the winning lottery numbers, you’re in for a disappointment.
Once You Master Pin Bars, You’re a Trading God!
Finally, let’s address the delusions of grandeur. Mastering shadows is an achievement, no doubt, but it doesn’t grant you divine powers. If you think you’re a trading deity now, remember that even Greek gods had their flaws. Stay humble, keep learning, and maybe you’ll earn your spot on Mount Olympus someday.
Conclusion:
Pin bars are the no-nonsense solution to your forex trading woes. They aren’t fortune-tellers, but they’re close. They offer clear signals, impeccable risk management, and the potential for handsome profits. So, why waste time on complicated indicators when you can harness the power of them?
FAQs:
Are Pin bars effective for day trading?
Yes, they can be a powerful tool for day traders, helping them identify intraday reversals and trend changes quickly.
Can a bullish pin bar be red?
It can be green or red. It doesn’t matter.
What’s the significance of the wick in a Pin bar?
The length of the wick in a bar reflects the strength of the reversal signal. Longer wicks indicate stronger potential price reversals.
Should I use Pin bars alone or in conjunction with other indicators?
Most indicators follow the price late, repaint, and give direction after the price is formed. However, Price Action guides you while the price is forming. Therefore, it is more useful to combine it with other Price Action concepts rather than indicators.
Does the color of a pin bar matter?
Color is not a criterion. It is independent of color. What matters is whether the wick is at the bottom or at the top? This shadow changes everything.
Where should I look for Pin bars in a chart?
They are most effective when they occur at the top or bottom of a trend or at a previously identified level of supply or demand. The other one is that trend continuations require a little more confirmation, for example, a candle with momentum forming in the direction of the trend.
Can I use Pin bars for all time frames?
Yes, they can be used in all time frames – from 1-minute charts to weekly charts. However, signals on higher time frames tend to be more reliable.
Can I use Pin bars in all markets?
Yes, you can use in any market that can be charted – stocks, forex, commodities, cryptocurrencies, etc.
Brian Miller is a Forex trader who uses price action, a method based on real prices instead of indicators. He learned this technique from hedge fund experts and has been trading full-time since 2011. He has a finance degree and writes about Forex on various websites. On this website, he shows his price action system and how it works in different markets.
