An Easy Way To Trade Pin Bars

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The Pin Bar Reversal Trading Strategy

Updated: September 21, 2020

This wouldn’t be a Forex website if it didn’t have a good article about the classic pin bar pattern.

Candlestick reversal signals are some of the most powerful and abundant signals used by price action traders – the most common of them being ‘The Pin Bar’.

Pin bar trading is generally the backbone of most price action trading systems used in today’s Forex markets.

I work with a different flavor of pin bar, which I call a Rejection candle – which provides more trading opportunities, and a more up to date, modernized view of the reversal pattern.

First, let me talk about the classic pin bar, then move on to explain how the Rejection Candle is different, and better.

The Anatomy of a Pin Bar Candlestick

The Pin Bar candlestick is made up of from a specific layout of the following 3 important focal points…

  • The open price
  • The close price
  • The nose or candle wick

The open and closing prices are pretty self explanatory; If you don’t know how read charts yet, please just out the following chapter – Understanding Japanese Candlesticks.

The most characteristic feature of the pin bar the ‘nose’. Pin bars have a long nose (aka candle wick) which protrudes out of one side of the candle body.

To qualify as a pin bar, the open and close must be situated at one end of the bar’s range, and the nose of the bar must make up at least 2/3’s of the whole bar’s range. The general rule of thumb is – the longer the nose of the pin bar, the more powerful the pin bar signal.

A Little History About The Pin Bar

Martin Pring was the first trader to notice this pattern on the charts, and in fact, ‘pin bar’ is short for Martin’s original term for the bar formation – ‘The Pinocchio bar’.

If you remember the childhood stories – Pinocchio was a wooden doll that was brought to life by his creator, and every time Pinocchio told a lie, his nose would grow larger.

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The analogy of Pinocchio tied in perfectly with Martin’s observations, because a pin bar is broken down into 2 moves.

The first par of a pin bars formation occurs when price moves from position X to position Y. Position X isn’t generally anywhere important, but position Y could be a strong technical point on the chart, like a support or resistance level, a weekly turning point or even another focus point.

This initial move draws in the ‘trigger happy breakout traders’, who love to jump in with the price momentum. Sometimes the X -> Y price move may even give the illusion that a major breakout is occurring.

Phase 2 of the pin bar creation happens when this initial X -> Y movement is not really the markets true intent, the charts were ‘telling a lie’. Price then springs back from position Y to somewhere near its original position X.

Just like Pinocchio, the bar grows a big nose as the ‘lie’ is revealed on the charts – trapping those breakout traders into bad positions.

Take a look at the bar chart below. You can see the two phases of price movements which are responsible for printing the pin bar on the chart.

How Pin Bars are Used in Trading

Pin Bars are one of the most powerful tools a trader can have in their price action arsenal. They form very regularly and can be found across all time frames. The pin bar’s core purpose to help the trader identify potential reversals in the market. When pin bars form, it is a good sign the market is ready to move in the opposite direction.

Price action always tells a story. The story of a pin bar is is one where price moved to an area on the chart. The move is rejected by the market, and pushes price back to its original point of origin. Sometimes even beyond if it’s a good signal. Working with the logic of the rejection principle of pin bars, we can use them to:

  • Capture potential tops and bottoms to price movements
  • Identify breakout traps that can lead to powerful price reversal moves
  • Position into trending environments at excellent prices.

Rejection Candles

When Pring first named the Pin bar – the majority of traders were using bar charts. These days traders prefer candlestick charts because they are easier to read, and are more aesthetically pleasing. The candlestick equivalent of a pin bar can carry many names – but here at The Forex Guy we call them ‘Rejection Candles’.

Pin bars and Rejection candles are almost identical in nature. But traders tend to use the term ‘pin bar’ when referring to candlestick charts, which is technically not correct. It also doesn’t sit will since I am OCD about getting things right �� I don’t like to call a white cat black, and I try not to call a candlestick signal a ‘bar’.

I call the ‘rejection’ part of the candle the ‘wick’ or the ‘tail’ of the candlestick. A Rejection Candle will have a large wick just like it’s cousin – the Pin Bar’s.

For a candlestick to qualify as a Rejection Candle it must have the following attributes.

  • The open and close price of the candlestick must be situated at one end of the candle (not in the middle)
  • The wick of the candle must protrude out of one end of the candle body. There must not be any large wicks sticking out both ends of the body.
  • The wick must make up at least 2/3’s of the entire candle length. Clause: If the wick is less than 2/3’s of the candles range, then the closing price must be either be higher than the opening price for a bullish signal , and lower than the opening price for a bearish signal . This is what makes the rejection candle’s anatomy differ from the pin bar – they can have thick or thin bodies.

Depending on which way the wick or nose produces from the Rejection Candle (or Pin bar signal), will determine whether it’s a bullish or bearish signal. I like to think of the signal as an arrow on the chart. Imagine the body of the candle is the arrow head. The wick or nose is the arrow body and the arrow points towards where price wants to go.

Here is an example of how a bullish Rejection candle points towards higher prices.

Notice the bearish rejection in the chart below. See how the wick of the candle protrudes upwards creating that imaginary downward pointing arrow, signalling price wants to move that way.

Identifying High Probability Trades Using Rejection Candles

Rejection candles, or Pin bars, form quite often across all the time frames – but that doesn’t mean all rejection candles are ideal trading signals. If you traded every single Rejection candle you would most certainly end up losing money – so it is very important to narrow down the signals that have a higher probability of working out in your favor.

To quickly improve our chances of success we trade Rejection Candles mostly from the Daily time frame (sometimes the 4 hour). Anything lower than the 4 hour time frame significantly reduces the quality of the signals. By sticking with the higher time frames we can immediately improve our odds of success – and that really goes for most Forex trading strategies.

To further improve the effectiveness of rejection candle trading, it’s best to trade rejection candles that form at important support and resistance levels on the daily chart.

Important support and resistance levels dominant on the daily, or weekly time frame are generally the key turning points for price in the market, especially those from the weekly time frame. Combining these important levels with Rejection Candle or Pin bar signals, you exponentially improve your chances for a successful trade. The odds are in your favor simply because market history repeats itself. If you study pin bars and rejection candles in your Forex historical data – you will see they continuously produce the same response from the market.

A bullish rejection candle forms off an important support level – signaling to price action traders that higher prices are likely to develop in the near term.

A bearish Rejection Candle forms at an important resistance, tipping traders off to bearish movement before it happens.

Here is an example of how Rejection Candle signals can be great reversal signals in ranging markets…

Here is another example of another ‘thick bodied’ bearish rejection candle range setup that was discussed in the War Room…

Notice how the rejection candle had a thick bearish body it to, unlike the common pin bar which only had a small range it its body. These thick bodies give the signal a little bit more ‘oomph’ and tend to work out much better. Check out what happened next…

As you can see this rejection candle was able to give a price action trader the early warning sign needed to position into a bearish trade BEFORE the actual sell off occurred. This is a good example of how powerful price action trading really is.

Rejection candles also work great in trending conditions as well. I know we said they are ‘reversal’ signals but if you think about it, reversals occur with in a trend. Rejection candles are very good leading indicators to let price action traders know when a counter trend movement has terminated. These counter trend moves push prices into what we call ‘hot spots’ where the price is right for positioning into a trend.

“Buy the dips and sell the rallies” – Have you heard this saying before?

Rejection candles that form at the dips and peaks within trends can offer very lucrative trading opportunities…

Check out the chart below. The USDCAD has printed a bullish rejection candle. Can you guess where this market might be heading.

Video: live rejection candle trade I took on the EURNZD daily chart…

To Summarize

It’s very easy to see why Rejection Candles and Pin Bars have become one of the most popular tools used by price action traders in today’s markets.

Rejection Candles are very powerful candlestick signals, and coupled with the right money management plan you can really do well. Rejection Candles produce excellent returns for price action trader, tip us off to moves before they happen and give us the framework to build a logical trade position from.

Rejection candles (and even pin bars) are easy to identify – they don’t take much effort at all to spot a great trading opportunity, especially when used with our Forex trading strategies.

If you would like to continue learning everything there is to know about Rejection Candles like; rejection candle entry strategies, stop loss placement, money management for rejection candles and even filtering out good vs bar rejection candle trade signals – the Price Action Protocol trading course inside our Forex Price Action War Room is going to be a -perfect- fit for you.

PinBar Price Action pattern

Pin bars are a type of single candlestick patterns, which, when appearing on the candlestick chart, offers distinctive clues into the Price Action ( ? What is PA?) that is unfolding. Pin bars are not to be traded in isolation, but need to be considered within the larger context of the chart analysis. The benefits of trading with the pin bar candlestick pattern therefore makes it best suited to improve an existing trading strategy. In order to use the pin bar candlestick patterns, it is best to understand the following:

  • What is a pin bar
  • Why are pin bars formed
  • How to trade the pin bars

What is a PinBar pattern?

A pin bar is an individual candlestick pattern and is identified by its long wick and small bodies. Typically, the wicks of the pinbar should be longer than the body. The chart below shows some different variations of the pin bar candlestick patterns.

Figure 1: Pin bar examples

Identifying a Pin Bar candlestick pattern

Pin bar pattern is characterized by a long upper or lower wick with a small body relative to the size of the wick with little to no lower or upper shadows.

Other candlestick patterns that also qualify as a pin bar are hammer and inverted hammer and hanging man type of candlestick patterns. In some cases, a doji candlestick pattern can also qualify for a pin bar candlestick pattern.

Figure 2: Identifying pin bars

The most important thing about the pin bars is that the color of the candle is not considered. Therefore, a bullish pin bar is identified by long lower wicks and a bearish pin bar is identified by long upper wicks, irrespective of how the body of the candlestick closes. Having said that, pin bars can have more validity when the body of the candle also corresponds to the over bias of the pin bar. For example, bullish pin bar with a bullish close is more valid and likewise, a bearish pin bar with a bearish candlestick is more valid.

Why are pin bars formed?

Pin bar pattern are formed when prices are tested and rejected, which is visually depicted by the long wicks the pin bar leaves. While pin bars can form anywhere on the chart, they are considered a strong pattern when pin bars are formed near support and resistance levels. Pin bars can also be commonly formed near a moving average as well as trend lines. Pin bars are valid across all time frames, but of course, a pin bar on a weekly or daily charts take more precedence than pin bars formed on lower time frames.

How to trade the pin bars

Figure 3: Bullish Pin bars at support

The chart above shows a pin bar rejection near a previously known support level. Notice how price constantly bounces off the support level subsequently. The identification of the pin bar at the support level shows that it is a strong level of buyers reflected by the long wicks. In this case, the pin bar is even more valid as the bullish pin bar also has a bullish close (twice). If you were to trade based off support and resistance, the appearance of the pin bar is reason enough to take long positions when price revisits the previously rejected price near the support zone.

Figure 4: Bearish Pin bar at resistance

In the next chart above, we get to see an example of a bearish pin bar. Again, it is more valid because the body of the pin bar is also in the same bearish bias as well. A second test of the resistance level after the first pin bar was formed held and a third attempt was made which formed in a weaker form of the pin bar and prices subsequently dropped lower.

Figure 5: pin bar pattern with trend lines

In Figure 5, we have an example of trading trend lines with pin bar confirmation. Here, we first plotted a down sloping falling resistance line connecting the first two lows. As price continues to fall further with the trend line acting as resistance, towards the end, we notice a strong bullish pin bar. This tells us that while prices were pushed lower, the buyers out numbered the sellers, leaving a long lower wick. Eventually, a few candles later, price broke out of the falling trend line to rally.

As can be seen with the above examples, pin bars can be very useful in expressing the market sentiment. Although they are powerful candlestick patterns, they are not ideal for trading in isolation. There are many instances where despite the appearance of a pin bar, prices continue to break the previous levels that were rejected.

In figure 6, we can see an illustration of how a pin bar formation failed at support level. When viewed in isolation, the pin bar might have looked valid; however, when we consider the bigger picture where price was making lower highs previously, we can already see that the prevailing trend was down and thus question the validity of the bullish pin bar.

Figure 6: Pin bar failure

To conclude, pin bars are easy to identify and when taken within the larger context of trading and provide great insights to the trader. Pin bars are best traded with an existing trading system or based on price action strategies such as trend lines, horizontal support/resistance levels or channels and Fib levels.

Forex Training Group

One of the most reliable candle formations you can see on the Forex chart is the pin bar. Many traders consider this as one of the most powerful candlestick patterns for trading. So today’s discussion will be dedicated entirely to the pin bar reversal candle. Let’s dive in.

The Pin Bar Setup

I bet you have seen many pin bars on your Forex charts. Maybe you haven’t been aware that you are looking at a pin bar formation per se, but you most likely have come across this candle:

Above you see the structure of the pin bar candlestick pattern and its four variations. The candle’s unique structure includes a long candlewick, a small body, and a small candlewick opposite the long candlewick. An important rule for identifying a pin bar is that the long wick should comprise at least 2/3 the size of the entire candle. Some traders find it useful to program a Pin Bar indicator in Metatrader or their preferred trading platform to make it visually easier to spot on the chart.

Many traders believe that the name “Pin Bar” comes from the pin like or needle like appearance of the candle. Actually, the name “Pin Bar” is short from “Pinocchio Bar” which was popularized by Martin Pring in his book “Technical Analysis Explained”.

The pin bar candle can be seen frequently on a Forex chart. However, the best tradeable pin bars are usually located at the end of an impulse wave, and extends outside of the preceding price action. When traders see a pin bar sticking out above or below the recent price action after a prolonged move, they could prepare to trade contrary to the trend attempting to catch the reversal price momentum.

Pin bars can be thought of as a price rejection zone, where major market participants have rejected price from staying at a particular price level. Before the price action closes a pin bar, the candlewick has initially been part of the candle’s body.

In this manner, before being completed, the pin bar candle has seen a large body in the direction of the trend. This creates the impression that the trend might continue with strength. However, contrary pressure appears and the candle closes near its open level, which ultimately appears as a big candle wick. Typically “The bigger the nose (wick) the bigger the lie”, referring to the unsuccessful big candle body, which has ended up being a wick. This is where the “Pinocchio” name comes from. Therefore, the bigger the wick the pin bar has, the stronger the reversal pressure is expected to be!

Bullish Pin Bar

A valid, tradeable bullish pin bar is located at the end of a bearish trend and its lower candle wick goes below the overall price action. If you spot a bullish pin bar setup on the chart, this will setup a nice opportunity for a long position.

Bearish Pin Bar

The same is true for bearish pin bars but in the opposite direction. The bearish pin bar is located at the end of a bullish trend and its longer candle wick is the upper area. In this manner, the longer wick is sticking out above the price action. The bearish pin bar is usually a good sign of an upcoming price reversal in the bearish direction.

Pin Bar Chart Examples

In general, when trading pin bars, speculators should look for big candle wicks forming beyond the recent price action after a prolonged price move. There are usually the best pin bar formations to trade. However, pin bars can also be valid during a trend, as prices are taking a pause or taking a breather prior to the resumption of that trend.

Pin bars formations that should be avoided are the ones which are counter to the trend but that do not stick above/below the general price action. In addition to this, pin bar signals that occur during a period of consolidation should also be avoided. Now have a look at the image showing you some pin bar formations on the chart:

The chart above starts with a bearish trend. At the end of the tendency the price action creates a bullish pin bar. The longer wick sticks out below the price action. Therefore, we confirm the pattern to be real. The price then shifts its direction and starts increasing.

After a prolonged bullish move, we get a bearish pin bar. The longer wick of the candle sticks out above the recent price action. Therefore, we confirm the reversal character of the candle. The price starts decreasing afterwards.

On the way down we see another bearish pin bar. However, its longer candlewick doesn’t stick out. Nevertheless, we could consider this a tradeable pin bar, because it is in the direction of the trend. It confirms the potential for a downward price movement. As you see the price continues the down run after this pin bar signal.

Later on, we spot a bullish pin bar on the chart (red circle). The candle has a reversal character. However, the longer wick doesn’t stick out below the price action.

Therefore, we can conclude that this pin bar is not a valid signal, since there is no real price rejection evidence to foretell a reversal of the bearish trend. Soon the chart validates this was a false pin bar and the price decrease continues.

By now you may have noticed that these Forex pin bar formations look like the hammer candlestick pattern and shooting star candlestick pattern. And if you did recognize this, you would be one hundred percent correct, as they are one in the same. The hammer and the shooting star are types of pin bar variations.

Price Action Trading with Pin Bars

As you know, successful forex trading is not only about identifying different patterns on the chart. We must know how to take advantage of the different chart patterns and incorporate a strategy around it.

Now that you are familiar with properly identifying pin bars on your price chart, we can now show you how to trade these formations.

Opening a Pin Bar Trade

When you spot a valid pin bar on the chart you should be aware of when to enter a trade. There are many different entry and exit strategies around pin bars, and in the following section, I will discuss one of these timing strategies as an example.

Bullish Pin Bar – When you identify a valid bullish pin bar you could buy the Forex pair at the first candlestick which closes above the small wick of the pin bar.

Bearish Pin Bar – When you spot a valid bearish pin bar setup, you could sell the Forex pair at the first candlestick which closes below the small wick of the pin bar.

Stop Loss on Pin Bars

As with every other trade setup, you should never be unprotected during your trade. Make sure you always use a stop loss order. Let’s discuss where we would place the stop loss order when trading the pin bar candle.

When you enter the market on a pin bar pattern, you should place your stop loss order right above/below the longer candlewick of the pattern. The distance between the entry level and the end of the longer candlewick is the approximate distance that should be allowed for the trade to work.

Make sure you are not using the exact high/low of the wick when placing the stop loss order. As a best practice you should leave some additional room beyond that to avoid getting caught in a stop run. We can assume that If the price goes beyond the longer candlewick, then the pattern is considered unsuccessful.

Take Profit in Pin Bar Trades

You now have some ideas on how to enter the market on pin bars and where to put your stop loss. So the next logical question becomes “Where should we exit our trade”. And that is what we will look to answer now.

Measure Distance based on the Size of the Pin Bar – Trades can use this approach for exiting candle pattern based trades. You can use one, two, or three times the size of the pin bar to determine the target. It is up to you which multiplier you would like to use in your own trading program. However, whatever you decide on when you build your pin bar strategy, make sure to use the same target approach for every trade – one, two, or three times the size of the pin bar. Also, keep in mind, that the bigger the target is, the lower the success rate will be, and the lower the target is the higher the success rate will be.

Use Price Action Rules – This approach involves applying simple support/resistance rules, in a combination with chart and candle patterns. Why exit a trade, where the price is still trending in our favor? If the price breaks a crucial support during our long trade, this can be a clear sign that we should close the trade. Also, if you spot another reversal candle pattern when the price is trending in your favor, you might want to close your trade at that time. The are many options available for the astute price action trader to manage their pin bar trade.

A Pin Bar Trading Strategy

Now we look to combine all the rules we discussed above to create a coherent trading methodology around the pin bar setup. Our pin bar trading system will start with opening a trade after a candle is closed beyond the smaller wick of the pattern. The stop loss will be located beyond the longer wick of the pattern. We will use price action techniques for determining the right time to close the trade. Have a look at the image below:

Let look at the EUR/USD chart above. The graph starts with a price decrease. Suddenly we see a bullish pin bar candle on the chart. The lower candle wick goes below the general price action. Therefore, we confirm the authenticity of the pattern.

The next candle which comes after the pin bar closes above the upper wick of the pattern. This is the right moment to open a long trade based on our pin bar trading plan. The price increases afterwards. Notice that on the way up, the EUR/USD creates a clear support level (blue line). If the price breaks this support downwards, then the trade should be closed based on the price action rules.

The support manages to hold the pressure of the price and the EUR/USD makes a new bullish run. At the end of the second bullish impulse we spot a Harami Reversal candle pattern. This formation could likely reverse the bullish trend which came after the pin bar pattern. Based on this price action, we might feel that this would be the right moment to close.

Let’s now illustrate a bearish pin bar trade example:

Again we have a EUR/USD chart above. The chart starts off with a bullish price move, which ends with a bearish pin bar candle formation. The longer wick of the pattern goes above the general price action, which confirms the authenticity of the candle.

The next candle which comes after the pin bar is bearish. As you see, it closes right below the tiny lower wick of the pin bar. This creates a short signal on the chart based on our rules.

Subsequently the price moves in the bearish direction. After the rapid decrease the price enters a consolidation phase, which resembles a falling wedge chart pattern. This figure has a strong bullish potential in case the upper level of the wedge gets broken. Therefore, the upper level could be used as an exit signal in this case.

Notice that the price action creates a bullish pin bar candle pattern inside the wedge. Although the longer wick goes below the price action, we should disregard this pattern, because it is formed during price consolidation.

Later the price action closes a candle above the upper level of the Falling Wedge. This creates a strong bullish signal on the chart. In this manner, we could decide that this is the right moment to exit the trade.

Let’s now go through a final pin bar trading example:

The image above displays the chart of the USD/JPY Forex pair. We see a bullish trend, which ends with a bearish pin bar candle pattern. Although the body of the candle is located below the previous three, the longer candlewick goes above the general price action on the chart. This confirms the presence of a valid bearish pin bar on the chart.

A couple of candles later the price action breaks the lower candle wick of the pin bar, which creates a short signal on the chart. Based on the entry rules, this is the right moment to sell the USD/JPY Forex pair. Soon after the price begins to move downwards. On the way down, one of the trend corrections creates a resistance area, which could be used for closing the trade. However, this resistance stays untouched and the trade should be held further.

The price continues the decrease with an even sharper pace. At the end of the second bearish impulse, the price action enters into a consolidation phase. Note that the consolidation resembles a symmetrical triangle. The upper level of this chart pattern could be used to close our short trade in this case.

Notice that at the end of the triangle formation, the price action creates a bullish pin bar pattern. The longer wick goes below the general price action, which means that the pattern is significant. This candle could be used as an early exit from the short trade. Otherwise, the exit signal comes when the price action closes a candle above the symmetrical triangle on the chart.

Conclusion

  • The pin bar candlestick pattern is one of the most powerful and easily recognizable candle patterns available.
  • The pin bar has a small body, a long candle wick which is at least twice the size of the entire candle, and a small candle wick opposite the long candle wick. The Hammer and the Shooting Star are types of pin bar candle patterns.
  • The name “Pin Bar” comes from “Pinocchio Bar”. The explanation for this is hidden in the price momentum, which pushes the candle to a rebound, creating a long candlewick. Traders attempt to catch this reversal pressure, which is likely to be stronger, if the wick of the pin bar is longer. In this manner traders say: “The bigger the nose (wick), the bigger the lie (the reversal)”, which refers to Pinocchio.
  • There are two types of pin bar candle patterns:
    • Bullish Pin Bar – It has long lower candle wick, small candle body and a small upper candle wick.
    • Bearish Pin Bar – It has a long upper candle wick, small candle body and a small lower candle wick.
  • A valid pin bar is one, wherein the wick goes above (or below) the price action. The highest probability pin bars are reversal signals that come after a prolonged price move.
  • A false pin bar is one wherein the long wick doesn’t stick out from the recent price action. Other pin bars which should be avoided are ones that occur during tight range bound conditions.
  • A Pin bar strategy could be traded the following way:
    • Identify a valid pin bar.
    • Open a trade in the direction of the pin bar when a candle closes beyond the smaller wick of the pattern.
    • Put a stop loss beyond the longer wick of the pin bar.
    • Use a multiple of the size of the pin bar as a target, or apply simple price action rules in order to exit the trade.

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