The reversal pin bar (above) is best played in a ranging market or on a pullback within a larger trend. A bearish Rejection Candle forms at an important resistance, tipping traders off to bearish movement before it happens. See how the wick of the candle protrudes upwards creating that imaginary downward pointing arrow, signalling price wants to move that way.
It is necessary to trade only pin bars that form at a certain key level. Because traders like to sell or buy from key levels like Round numbers, Fibonacci levels etc. Forex trading is a complex and dynamic market that requires a deep understanding of various trading strategies. One such strategy that has gained popularity among traders is the Pin Bar. In this article, we will delve into the basics of the Pin Bar and how it can be effectively used in forex trading.
If the price breaks this support downwards, then the trade should be closed based on the price action rules. When pin bars form at the top or bottom of a consolidating market that is taking a breather after a large directional movement they can often signal trend resumption is near. In the daily chart of USD/CAD below we can see multiple pin bars formed at the top of a range bound market that was most recently in a large down trend. The last pin bar on the right side of the chart set off a very powerful move that resulted in a breakout of the range and subsequent downward trend resumption.
- If it is used properly, you will be able to profit from the forex market easily.
- 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.
- The Pinbar Trading Strategy works by identifying trend reversals in the market.
- All market dynamics should be used in conjunction to provide a strong and certain direction for the domination trend.
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. There are other stop loss placements for my various setups taught in my advanced price action course. The forex trading educational video above discusses how I trade the pin bar reversal 50% entry within a trading range.
How to Trade the Pin Bar Candlestick Chart Pattern – Trading Strategies
Over the years, I have honed my analytical skills, staying updated with market trends, economic news, and technical indicators. This in-depth understanding has empowered me to navigate the dynamic forex pin bar trading strategy nature of Forex trading with confidence. Driven by my passion for trading, I have taken the initiative to share my insights and experiences with others through my engaging blog posts.
- They are best played at confluent levels with strong support and resistance confirmation.
- We want to place a sell-stop order 3-5 pips below the low of this reversal candlestick.
- If the market reaches this area, the pattern is compromised and the setup is no longer valid.
The small body signifies weak buying or selling pressure, indicating indecision in the market. 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, or Pin bars, form quite often across all the time frames – but that doesn’t mean all rejection candles are ideal trading signals. Now that we know what a pin bar is, let’s explore some trading strategies that can be used to take advantage of this powerful candlestick pattern.
Higher timeframe analysis
Any time you see a point in the market where price initiated a significant move either up or down, that is a key level to watch for pin bar reversals. So, all the points of confluence lined up for this setup and told me the setup was valid and worth trading. This video has been a great example of how to use confluence to trade the pin bar forex trading strategy. The high or low point of pin bar candlestick act as an important level.
“Limit entry” – This entry must be placed above the current market price for a sell and below the current market price for a buy. The basic idea is that some pin bars will retrace to around 50% of the tail, so we can look to enter there with a limit order. This provides a tight stop loss with our stop loss just above or below the pin bar high or low and a large potential risk reward on the trade as a result. The pin bar trading strategy is one of the easiest to apply because of its unique candlestick pattern with a tail and a real body. The Pinbar Trading Strategy is a simple and effective price action pattern that can be used to identify trend reversals in the Forex market.
Pay Attention to the Closing Price
As mentioned previously, this violates our 2R minimum as our profit target would need to be at least 160 pips away, so there’s no trade using this type of entry. Although the 50% entry can provide better returns, it’s not without flaw. So if I’m risking $1,000, my minimum reward as defined by my profit target must be $3,000 or better. But before we do, I want to touch on the concept of a favorable risk to reward ratio.
A Pin Bar Trading Strategy
Market structure is everything with pin bar strategy, in it, you will find, supply and demand, support and resistance, order blocks, and higher highs and lows. The only thing you need to learn about pin bar strategy is that it works along with price action and market structure. Conservative stop-loss can be set behind the nearest support/resistance level behind the eyes.
Due to the automated trading these days, the price action is determined by sophisticated trading algorithms that are in search for some stops. Classic patterns are detected by them quickly, and the algos are positioned against the crowd after that. Due to this reason, patterns like head and shoulders, double and triple bottoms, triangles, wedges, cup and handle, and flags sometimes fall while trading currencies. When a triangle is formed by the market, it trades in a narrow range only until the b-d trend line is broken. Similarly, in a head and shoulders pattern, the left and right shoulders’ consolidations take too much patience of the traders.
Pinbar Trading Strategy Pros & Cons
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.
Foreign exchange or Forex is the most liquid market in the world and it attracts more retail traders every day with that have the sole purpose of making money. Although simple, yet pin bar trading is a very effective trading strategy offering excellent risk-reward ratios. The short name for “Pinocchio Bar”, the pin bar is a single candlestick setup. This technique differs from the classic pattern recognition approach before its time. Nowadays, candlestick charts are preferred by Forex traders all over the market. Pin bars occur in all market conditions; up trends, down trends, and range bound.