ForexTrading strategies

Pin Bar Trading Strategy

Foreign exchange attracts more investors each day. These traders enter the market with various expectations, but they all have the same goal which is to make money. In this article, we have broken down the pin bar strategy. We delve into the tactics of using this as an effective and simple way for traders to optimize their profits with minimal risk. 

The pin bar is one of the most profitable reversal patterns a trader can use in forex. But not all pins are equal or profitable. Ensure you start by noting the pin bar’s position as it takes shape on the market charts.

How To Trade Forex Pin Bars

The pattern better known as candlestick is a very popular price approach used in forex trading. It has been around long enough to prove it is a dependable trade sign. This provides traders with a chance to execute new trades with minimum risk and expect better rewards. 

Just like any other candle, there are different colors on a forex chart that represent different things. If the body is white, or green, that means the exit price is much higher than the opening price. If it is red or black, it means that the closing price is much lower than the opening price. The main characteristic of a candle is the opening and closing formation. The wick sticks out past two adjacent candles. The longer the wick, the better the formation quality.

The Pin Bar Setup

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The name pin bar is derived from “Pinocchio Bar” which was made popular by Martin Pring. The setup is a consistent and easy-to-notice objective that produces a better winning rate. They are frequently spotted on a forex chart. This type of setup means it is purely based on price action and signals are not used beyond the price charts. 

A candlestick always has the following features:

  • A wick that is thrice the length of the candle size. 
  • A long nose that sticks out. 
  • Open and shut within the previous bar. 

Bullish Approach

This candle is a very strong signal provider in forex trade. It always appears at the bottom of a downward trend and signifies an increase in buying.  Such patterns trigger a reversal of a trend because it is at this time that more buyers flood the market making the prices spike. 

A valid candle is usually located at the tail end of a  bearish trend. Its bottom candlewick goes further down than the common price action. Identifying a bullish approach on a chart gives traders a good chance for a long position. 

Such a candle is a very strong signal provider in forex trade. It always appears at the bottom of a downward trend and indicates an increase in buying. These trigger a reversal of a trend because at this time more buyers flood the market, making the prices spike. 

Large patterns indicate that more buyers are flooding the market providing room for upward momentum. Traders are advised to always make use of price actions, indicators, and levels of resistance and support to make sure that the trend is turning around.

Bearish Approach

Bearish patterns are usually located on the tail end of other pattern trends. The upper area is its longer candlewick. This way, the longer wicks are noticeable over the price action. The bearish approach is a good sign of incoming price reversal.

Here, strong signals appear above an upward trend signifying growth in selling pressure. Bearish patterns prompt a reversal of a current trend. At this time more sellers flood the market making the prices nosedive.  Enormous bearish candles signify more sellers are getting in the market providing grounds for a downward momentum. 

Pin Bar Chart Interpretations

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In this trade, you should always look out for bigger candle wicks that form past the latest price action. These are usually the most suitable formations for trading. 

Formations of patterns that should be avoided are those that counter the trend but still don’t stick below or above the price action. Signals that occur during consolidation should be avoided.

Pin Bar Trading Guidelines

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For this to be successful, there must be rules to be observed. There are laws for both continuous trade and brief trade as shown below. Trading rules are based on the interaction linking support, resistance levels and the chart patterns.

Long term trade rules:

  • Open above the support level
  • Trade below the support level.
  • Bars close over the support level.

Short term pin trade rules: 

  • Open under the resistance level. 
  • Bars trade over the resistance level. 
  • Pins close below the resistance levels.

Mistakes To Avoid When Trading Pins

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This trade is very simple. But it is only profitable if as a trader, you learn how to properly use the strategies to trade. A common mistake you should avoid if you want to benefit from this trade is the use of incorrect prices. It is frustrating if you use the pin as a continuous signal. Always make sure you make use of the correct chart areas so that you can use the right prices to trade. The price must open and close while still within the previous candle. 

How To Trade

It is advisable to open a trade in a different direction to the prior market movement. This means the direction opposite to the nose. In a bearish approach go short otherwise, go long. There are three strategies involved in opening the trades each with its level of risk. 

  • Level-based entry. The most suitable time to open a trade is when it is formed alongside a strong level. In such a case, place a purchase order above the level where the pattern is formed. In a bearish approach, place an order below the horizontal level.
  • Rollback entry. Here, an order is placed at the middle level of the candles. In a bearish pin pattern, place a sell limit, otherwise place a purchase limit.
  • Pending order. Here, you don’t have to wait for the pattern eye to close. In case of a bearish pattern, place a sell order under the lower part of the pin bar nose. Otherwise, place a purchase stop above the nose of the pin bar. 

For a trader to maximize profits using candles, here are some steps to follow.

  1. Wait for pin levels to form. Whether it is a bearish or otherwise, position a selling stop order below the bearish pin. Set a buying stop order above the other bar. 
  2. Place stop losses on the other side of the pin bar. Above the high if it’s a selling stop order and below the low, if it’s a buying stop order.
  3. If you want to target profits, make use of the previous swing peak points, or swing low bottoms
  4. Lock in your profits while the price is still favorable to you. This way, if the market moves against you, you would still have gathered your profits.

Stop-Loss

As a trader, always make sure you are protected during your trade. Always engage a stop-loss order when transacting with candles. It is advisable to put your stop-loss order above or below the long wick of the candle pattern. For the trade to work successfully, the distance between the entry-level and the tail end of the long candlewick.

Never use the same high and low of the candlewick while setting the stop-loss order. Consider the trade unsuccessful if the prices go past the longer candlewick. Do your research well and understand both the bearish and other strategies before using your hard-earned money in trading.

How To Exit A Trade In Pin Trading 

For a trader to successfully exit a trade using pins, they must measure the distance based on the candlestick size. The larger the goal is, the fewer your profits. The smaller the goal is, the higher the profit. 

If you follow price action guidelines, apply a few support rules. This is with a combination of chart and candlewick patterns. If you notice a reversal pattern when the price is in your favor, it is advisable to close the trade at this time. 

A Pin Bar Trading Approach

It is essential to create a comprehensive trade method using this approach. Begin by starting a trade after a candle is closed past the smaller wick in the chart. At this point,  the stop loss is positioned past the longer wick of the pattern.  Always apply the price action evaluation as a technique to determine the most favorable session to exit the trade.

Various Levels to Consider Before Transacting With Pin Bars

Do not trade any random pin bar you see on the charts. This is because the location of where the pin forms directly affect the rate of your success in trading. Therefore, the best places to trade forex candles are:

  • Main support levels. 
  • Main resistance levels. 
  • Traders action zones. 

 Key Takeaways

The is one of the most recognizable trade patterns available in the forex market. As a trader, the most suitable way to learn trading patterns is to practice reading charts. Once you identify a selection of patterns, evaluate whether they are suitable or not. These are the perfect ways to identify a short-term or continuous price guideline in fx trade. 

Not every pattern is worth trade. As a beginner, always be on the lookout for daily chart time pin bars as these are the most profitable. Be certain to train yourself to recognize trade approaches on a demo account first before using your real money to trade them.

Marc Richer

Marc Rich (born Marcell David Reich; December 18, 1956 – June 26, 2013) international commodities trader, hedge fund manager, financier, and businessman.

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