Sometimes a chart or a candlestick pattern may provide a decent entry signal if it is located at a certain level. A pin bar is one of the most reliable and famous candlestick patterns, and when traders see it on the chart, they expect the price to change its direction soon. If you understand how to recognize this pattern and use it in trading strategies, it will serve as an excellent instrument for making reasonable decisions.
What is a pin bar?
A pin bar is a type of candlestick that signals the reversal of prices. It consists of a long shadow, a small shadow, and a body between them. Fun fact: this pattern’s name is short for Pinocchio, as it has a long wick similar to Pinocchio’s nose.
However, besides a long shadow, there are also special market conditions to call a candlestick pattern a pin bar.
In the picture above, you can see two types of pin bars: bearish and bullish.
A bearish pin bar is formed after a solid movement upwards or at the end of an uptrend.Its body is entirely contained within the body of a previous bullish bar. It has a long upper tail that could be three or more times longer than the body size. It can be either bearish or bullish, but the bearish one is believed to provide a stronger signal. The pattern should be confirmed by the bearish candle that opens below the body of the pin bar. This signal shows that bulls tried to push the price higher, but their attempts got rejected.
A bullish pin bar appears at the end of the downward movement or downtrend. It opens within the body of the previous bearish candlestick and has a long lower tail and a small body. The pattern must be confirmed by the bullish candlestick that opens above the closing price of the pin bar.
Now, as you know the main element of the strategy, let’s move on to the setups.
Strategy Requirements
Instruments: Major currency pairs with tight spreads and high liquidity available on a Standard account.Since we will talk about a scalping strategy, we must be attentive to this detail.
Technical setups: key levels, trend lines, pin bar formation.
Rules for a short entry
Mark the key levels and identify trend lines.
When a pin bar is formed at the important resistance level, place a “Sell” order 10-20 points below the pin bar’s low.
Place a Stop Loss 20-30 points above the resistance line that caused the rejection of prices.
Place a Take Profit when the price gets twice or three times bigger than your risk for this trade or exit at the significant support level.
Example
The chart above shows that EURUSD tried to spike higher after it reached a local trend line on the M15 chart. However, bulls could not hold the positions for a long time. As a result, the pin bar was formed. After confirming it, we placed a sell order below the low of the pin bar at 1.03497 and a Stop Loss above the recent resistance line at 1.03598. We put a Take Profit level at 1.03194. As a result, we earned 302 points.
Rules for a long entry
Mark the key levels and identify trend lines.
When a pin bar is formed at the important support level, place a “Buy” order 10-20 points above the high of the pin bar.
Place a Stop Loss 20-30 points below the support line that caused the rejection of prices.
Place a Take Profit when the price gets twice or three times bigger than your risk for this trade or exit at the significant resistance level.
Example
On the same chart of EURUSD, we considered a buy scenario. After the price slid below the psychological level of 1.2000 and tested the area near the 1.1900 support zone, the pin bar pattern was formed. We opened a buy order above the high of the pin bar at 1.20058 and placed a Stop Loss at 1.19870. With a 1:3 risk-reward ratio, we set a Take Profit at 1.20619. With this strategy, we earned 560 points.
Bottom Line
Now you know a new scalping strategy for trading. To test the strategy first, you can try it out with a Demo account.
trading strategy
every trader should know
Author: FBS Analyst Team
More by this author
Similar
How to Trade Triangle Chart Patterns?
A triangle chart pattern is a consolidation pattern that involves an asset price moving within a gradually narrowing range.
Among hundreds of different indicators and technical tools for traders, the relative strength index (RSI) is one of the most popular due to its simplicity and, at the same time, its power in various trading cases. In this article, we want to tell you about another powerful tool similar to RSI but with some cool tweaks.
There are a lot of valuable strategies that require the knowledge of candlestick patterns and oscillators. However, not of them are profitable. When you start trading with them, you can face situations when the strategy is not moving your way.
A trader can also enter a pin bar signal by using an “on-stop” entry, placed just below the low or above the high of the pin bar. Trading with the trend is arguably the best way to trade any market. A pin bar entry signal, in a trending market, can offer a very high-probability entry and a good risk to reward scenario.
Pin bars work on all time frames but are especially powerful on the 1 hour, 4hour and daily chart time frames. It is possible to make consistent profits by only trading the pin bar formation, and you can learn more about it in my price action trading course.
An effective pin bar trading strategy would be to wait for the price to retrace about half the distance of the wick. A trader can buy near the 50% retracement of the wick, or simply wait for a breakout and place a buy stop above the pin bar's high. The stop loss would be placed just below the pin bar low.
Pinocchio's strategy requires the trader to identify a short candle with a long shadow. In this situation, the direction of the shadow and the price movements are opposite. In other words, the long shadow of a small candle shows the opposite direction of the market movements.
On a bullish pin bar formation, we will typically buy on a break of the high of the pin bar and set our stop loss 1 pip below the low of the tail of the pin bar. On a bearish pin bar formation, we will typically sell on a break of the low of the pin bar and place a stop loss 1 pip above the tail of the pin bar.
Wick fill trading is a financial market strategy that focuses on analyzing candlestick chart patterns, emphasizing wicks—transient upper and lower shadows—rather than candle bodies. Traders use this strategy to examine how wicks are filled during future market moves.
Good examples of commonly used time frames in day trading include 1, 5, 15, 30, and 60-minute charts. Remember, choosing a trading frame that suits your strategy and trading profile is crucial. This is why practicing using different time frames in demo trading is highly recommended before making real trades.
Medium-term time frames, such as the 4-hour and daily charts, are often favored by beginners. These time frames strike a balance between providing enough trading opportunities and allowing for a broader perspective on market trends.
A 10- or 15-minute chart time frame is for someone who wants to see the major trends and movements throughout the trading day, not each little gyration (like the 1- or 5-minute). If you want to trade on a 15-minute chart, build and test the strategy on a 15-minute chart.
Ideally, the Inside Bar should form within the Mother Bar's upper or lower half. An Inside Bar formation right after a price breakout in the current trend provides the most accurate signals. This is because it indicates that the current trend is going to end, and the market will reverse.
A bullish pin bar pattern is a candlestick pattern that signals a potential bullish reversal in the market. This pattern is characterized by a single candlestick with a small body that can be either red or green, a long lower shadow, and a short upper shadow.
The double red strategy is a short term reversal system based on price action and resistance. The trade is set up on the 5 min charts and is signaled when two bearish candles form following a test of resistance. The signals generated with this system are good for 30–60 minutes and no longer.
This is called the Pinocchio paradox and it's pretty weird, but there is a way to sort of solve it. We can simply say that Pinocchio's nose will only grow when he's being dishonest intentionally (Which is basically lying). This means that the statement “my nose grows now” is not a lie, but a false prediction.
The Harvard study, Evidence for the Pinocchio Effect found that people who are lying tend to use a lot more words than people who are telling the truth, probably because they feel the need to convince the other person of what they're saying, rather than just tell them something.
An “inside bar” pattern is a two-bar price action trading strategy in which the inside bar is smaller and within the high to low range of the prior bar, i.e. the high is lower than the previous bar's high, and the low is higher than the previous bar's low.
The Pinbar Rejection indicator identifies pinbar candlesticks, that is rejection of lower or higher prices when the price action crosses the moving average.
Pinbar Detector is a MetaTrader indicator that tries to detect Pinbars (also known as "Pin-bar" or "Pin bar") and marks them by placing a "smiling face" symbol below the bullish Pinbars and above the bearish Pinbars. It is a pure price action indicator, which is not using any standard technical indicators in its code.
Hobby: Shopping, Table tennis, Snowboarding, Rafting, Motor sports, Homebrewing, Taxidermy
Introduction: My name is Duncan Muller, I am a enchanting, good, gentle, modern, tasty, nice, elegant person who loves writing and wants to share my knowledge and understanding with you.
We notice you're using an ad blocker
Without advertising income, we can't keep making this site awesome for you.
