Pin bar candlestick and Pin bar strategy

As you probably already know, trend trading is very profitable. Many professional traders use it: from beginners to big market makers and hedge funds. But, despite the external simplicity, this strategy has two problems: finding the point where a strong movement begins and, above all, determining when it ends. For all technical analysis fans, we will explain how to find these points with the Pin Bar candlestick pattern and make a profit.

What is a pin bar candlestick

The Pin bar candlestick is a particular type of Japanese candle. This candle has a distinct shape which makes it easy to identify on the chart.

Pin bar candlestick is part of the Price Action method, which is positioned as a further development of candlestick analysis. It’s fair to say that it’s not entirely clear what “development” is other than renaming the standard graphics models.

The same Pin Bar is one of the special cases of “Doji” – candles with a small body and long shadows. Also, Doji is a reversal signal, and the principles of its creation can be successfully applied in Price Action.

We could say that Price Action is a strategy, not a strict trading system with clear rules. Traders can use it in combination with free signals or an indicator strategy. As practice has shown, you can get up to a 30% increase in average profit.

Pin bar candlestick Basic structure

The name was coined due to the type of central candle similar to the nose of the fairy tale hero Pinocchio – the biggest and most reliable signal. The Pin Bar forms at the end of an uptrend and a downtrend. The classic version looks like this:

The ideal pin bar candlestick

Traders consider an ideal inverted pin bar as a candlestick with two comparable mandatory criteria:

Pin bar entry and exit levels are placed next to the previous bar, closing near the top or bottom.

The opening and closing pin bar candles are placed in the previous bar called the left eye.

For the Pin Bar candlestick to be considered formed, the following conditions must be met:

  • The central candlestick’s body is absent or does not exceed 20% of the length of the “nose.” If this condition is not met, the pattern is not considered correct, and beginners should miss the live binary signal;
  • “Nose” extends well beyond the “eyes.” But the body should be completely inside and as close as possible to the closing price. According to usual candlestick analysis, it is considered to be a “Hammer” (Bullish Pin-Bar) or “Inverted Hammer” for a Bearish Hammer.

The center candlestick cannot be an inside bar, another basic Price Action construct. It is seen as a trend continuation pattern. And only in rare cases is it followed by one of the binary options signal services!

  • The close of the pattern is always close to the opening price or outside the left eye;
  • On the chart, you can find many areas with candle combinations similar to Pin-Bar, especially on shorter time frames. Even if they are “correct,” choose as entry point those that are close to:

– Intraday support/resistance levels;

– Significant high/low prices: week, month, or daily with high volatility;

Fibonacci levels in case of correction of the major trend;

– Moving average, especially for long periods, for example, 200 days;

– Areas where there are several levels (merger);

– The pivot point.

Bullish pin bar – what does it mean?

A bullish pin bar signals an impending uptrend. While there is a downtrend, this pin bar forms at the point of trend exhaustion.

Its small body forms at the top, along with a long shadow pointing down. This shows that when the sellers pushed the prices down, the bulls jumped up, pushing the prices higher. Once this candle is formed, you need to enter a buy position.

Bearish Pin bar candlestick

Pin bar bearish candlestick indicates an impending downtrend. During an uptrend, the bearish pin candle forms at the point of trend exhaustion. Its small body is located at the bottom with a long shadow pointing up.

This indicates that buyers are trying to drive up prices. However, sellers stepped in and drove prices down. Once the pin bar is fully developed, you must enter a sell position.

Two ways to trade using bar candlesticks

If you want to trade using candlesticks effectively, you need to ensure that two conditions are met. First, you need to wait until the pin bar is fully expanded. The longer the pin bar tail, the better. Second, the pin bar candle must form during trending markets.

What does pin high mean?

Pin high is referring to the point on the chart where the pin bar’s wick is the highest (for bearish pins) or lowest (for bullish pins). It signifies a point of strong rejection by the market. The Pin bar strategy is often combined with other forms of technical analysis to confirm entries, exits, and potential stop-loss points.

What is the difference between a pin bar and a hammer candlestick?

Visually, these Candlesticks are the same. Bearish Pin Bar Candlestick = shooting star. Bullish Pin Bar = Hammer. In terms of meaning, Pin Bar Candle is more complete.

Shooting Star and Hammer are two Candlesticks that occur at the end of an uptrend. They are seen as a trend reversal candlestick pattern. Pin Bar is a unique candlestick. Its appearance sometimes signals a continuation of the trend.

Fake pin bar candlestick

If the shadow doesn’t go beyond the previous bar and the general price movement, then we have a false pattern. Thus, we have not a price reversal pattern but a short-term pullback, after which the trend continued. At the same time, the right combination of candlesticks shows a new high or low with a subsequent reversal.

A fake pin bar candlestick is considered riskier, and you should only use it in trading if you have enough experience. Before opening a trade, you should check the direction of the trend for several higher timeframes. And then pay keen attention only to the candles that appear during pullbacks and corrections.

From the point of view of the market situation, Pin-Bar appears when the big players decide with one sudden movement to take out the smaller ones, “reversing” their positions at the end of a trend.

This is the reason for the long “nose” when a large increase in market volume temporarily moves the market past the end of the movement. Similarly, market makers “hang” their pending orders if the price levels have not reached the calculated level before the reversal.

How to Trade a Pin Bar Candle Formation – Pin Bar Trade

Let’s see what pin bar trading involves. To trade a pin bar formation effectively, you must first ensure it is well defined (see characteristics above).

Then try to take only pin bars that are confluent with another signal. In general, pin bars taken in confluence with a dominant trend are the most accurate.

However, plenty of profitable pin bars occur in the markets within a narrow range or significant trend reversal levels. Also, try combining the pin bar pattern with supports and resistances, trend lines, Fibonacci retracement levels, or moving averages.

A pin bar formation is a reversal setup.So for a bearish pin bar formation, we will sell on a break of the pin bar low with a stop loss one pip above the bar’s long wick. We will buy a break of the pin bar high with a stop loss one pip below the low on a bullish pin bar candle formation.

Trading pin bar candlesticks based on their color

You may have noticed that bullish pin bar candles can be orange in color. On the other hand, bearish pin bar candles can be green in color. So how can you trade pin bar candles using their colors?

The answer is in the nest candle that forms after the pin bar. If a bullish bar appears, the next candle will most likely be green.

Conversely, if a bearish pin bar candle appears, the next candle will likely be orange. So if a green candlestick emerges after a pin bar, you need to enter a buy position. If an orange candle occurs after a bearish pin bar, you should enter a sell position.

Pin bar candlestick – In Conclusion

Pin bars represent one of the most popular candlestick formations. As with other formations, they must be preceded by a directional movement in price. A bullish pin bar should be preceded by a downward move.

A bearish pin candle, on the other hand, is only relevant if preceded by an upward move. A trade based on pin bars confirms best by an additional element from chart analysis. Horizontal support and resistance levels, trend lines, and Fibonacci levels will work great as confirmation.

The formation of a pin bar can be a very useful tool in your arsenal of forex trading setups. The best pin bar setups occur with a confluence of signals such as support and resistance levels, confirmation of a dominant trend, or other confirming signals.

Look for well-formed pin bar setups that meet all the characteristics listed in this tutorial. Leave  out any that don’t inspire confidence. Pin bars work with all timeframes but are particularly powerful on the four-hour chart, daily, and weekly charts.

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