The Pin Bar
Pin bar reversal setup
The pin bar is probably the most well known price action setup, as it is a very simple price action candle to spot. So lets talk about the pin bar structure, for me I look for a candle that has a large wick or tail that is atleast three times the length of the body of the candle. Its tail must stick out away from price because we are using this price action candle as a reversal signal and it must form at a swing point. The longer the tail, the stronger the rejection and this gives us a clue price may be about to turn around.
Where do we look to trade Pin bars from?
If we want to short the market in a down trend, we look for a pin bar to form at a swing high and if we want to take a long position with an uptrend, the pin bar must form at a swing low. Pin bars are reversal candles not continuation candles and so must form at swing points.
Now there are a few other essential points we need to consider to help validate a pin bar. These rules enable us to differentiate between the right pin bars to trade and the ones which we should let pass.
1. The pin bar must be large in size and stick out. For a pin bar to stick out, the pin bar wick or tail must protrude out away from the current price. To check the size of the pin bar is correct, we need to take a look at the previous candles that form before the pin bar in question. Looking to see if the pin bars size or range of the candle is as large or bigger then the previous candles range.
2. The open and close of the pin bar must be within the previous candle range e.g, If we are looking to take a bearish pin bar to short the market and price closes above the high of the previous candle range, it would not be a valid bearish pin bar and so void. The same conclusion would arise if the pin bar closed below the low of the previous candle range, when looking to take a bullish pin bar, long.
3. The colour of the body of the pin bar is irrelevant, as long as it closes inside the previous candle, it’s valid.
4. The wick or tail must be three times larger than the body of the pin bar.
5. The pin bar which forms must reject an important key level. Remember we don’t trade a setup unless it forms at a key level. Levels are paramount.
So here’s some examples of valid pin bars;
Pin Bar Setup
Pin Bar Price action strategy is another trading pattern that you can observe on Forex candlestick charts. A pin bar tells us how the market is currently behaving to identify the price trend of Forex currencies. You can easily identify the pin action bar as it has a long protruding tail or wick with a very small body.
The chart above shows how to determine entry and exit points using price action bar. You can view the bullish chart action bar that is indicated in the form of a short body with a long wick or tail. The pin bar essential indicates that the market had tried to move higher (or lower) but rejected the higher (or lower) prices. It closed in the same level at which it had started.
The following buy strategy is recommended for trading in Forex using pin bar setup.
- Entry Point: Closing price of the bullish pin action bar
- Stop Order: High point of the longest bullish pin bar wick
- Stop Loss Order: Low point of the longest bullish pin bar wick
- Take Profit/Exit Value: First Support Level
Note: The sell strategy using pin bar setup is exactly opposite to the buy rules.
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