An Introduction to Pin Bars in Forex Trading and How to Trade Them Effectively…The pin bar formation is actually a price reversal pattern consisting of three bars. Once familiarized with pin bar formation it is apparent from looking at any price chart just how profitable this pattern can be. Let’s go over exactly what a pin bar formation is and how you can take advantage of the pin bar strategy in the context of the Forex market.What is a Pin Bar?The actual pin bar itself is the middle bar of a three-bar formation that can be found on any stripped down “naked” bar chart or candlestick chart. We will cover the candlestick pin bar formation after our discussion of the pin bar formation using standard bar charts. Many people prefer the candlestick version over standard bar charts because it is generally regarded as a better visual representation of price action.
Characteristics of the Pin Bar Formation• The open and close of the pin bar are within the price range of bar 1 and bar 3 of the formation, or very close to being within their range.
• The open and close of the pin bar are very close together, the closer the better.
• The open and close of the pin bar are near one end of the bar, the closer to the end the better.
• The shadow or tail of the pin bar sticks out from the surrounding price bars, the longer the tail of the pin bar the better.
Bearish Reversal Pin Bar FormationIn a top or bearish reversal pin bar formation the pin bar sticks out noticeably in between bar 1 and bar 3 and has a long protruding tail.
Bullish Reversal Pin Bar FormationThe bullish or bottom reversal pin bar formation is the opposite of the top reversal pin bar formation. Here again, we see the pin bar has a long protruding tail that has obviously rejected a certain price level.
How to Trade a Pin Bar FormationTo effectively trade the pin bar formation you need to first make sure it is well-defined, (see above characteristics). Not all pin bar formations are created equal; it pays to only take the pin bar formations that meet the above characteristics.
Next, try to only take take pin bars that are displaying confluence with another signal. Generally, pin bars taken with dominant trend confluence are the most accurate. However, there are many profitable pin bars that often occur in range-bound markets or at major market turning points. Try to also combine the pin bar pattern with strong support and resistance levels, trend lines, Fibonacci retracement levels, or moving averages.
The pin bar formation is a reversal setup, so for a bearish pin bar formation we will 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. On a bullish pin bar formation we will 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.
Candlestick Pin Bar FormationsCandlestick pin bar formations are exactly the same as standard bar chart pin bar formations except the terminology is a little different. They should be traded the same way however.
• A bearish reversal or top reversal pin bar formation can be called a long wicked inverted hammer, long wicked doji, long wicked gravestone, or shooting star.
• A bullish reversal or bottom reversal pin bar formation can be called a long wicked hammer, long wicked doji, or long wicked dragonfly.
Candlestick pin bar candle formations should also display the same characteristics that we listed above for standard bar chart pin bar formations.
In SummaryThe pin bar formation can be a very valuable tool in your arsenal of forex trading strategies. The best pin bar strategies occur with a confluence of signals such as support and resistance levels, dominant trend confirmation, or other confirming signals. Look for well formed pin bar setups that meet all the characteristics listed in this tutorial and don’t take any that you don’t feel particularly confident about. Pin bars work on all time frames but are especially powerful on the 4hour, daily, and weekly charts. 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. Add this powerful setup as one of your main forex trading methods and you will wonder how you ever traded without it.
