Pin Bar Trading Strategy

Sometimes a chart or candlestick pattern can provide a decent entry signal if it is at a certain level. The pin bar is one of the most reliable and famous candlestick patterns, and when traders see it on the chart, they expect the price to change direction soon. If you understand how to recognise this pattern and use it in trading strategies, it will serve as an excellent tool for making sensible decisions.

What is a pin bar?

The pin bar is a type of candlestick that signals a price reversal. It consists of a long shadow, a small shadow and a body in between. Fun fact: the name of this pattern is short for Pinocchio, as it has a long wick similar to the nose of the famous character. However, in addition to a long shadow, there are also special market conditions to call a pin bar candlestick pattern.

In the image above, you can see two types of pin bars: bearish and bullish.

The bearish pin bar forms after a solid upward move or at the end of an uptrend. Its body is completely contained within the body of the previous bullish pin bar. It has a long upper tail that can be three or more times longer than the body size. It can be either bearish or bullish, but the bearish one is believed to provide a stronger signal. The pattern should be confirmed by a bearish candlestick that opens below the body of the pin bar. This signal shows that the bulls tried to push the price higher, but their attempts were rejected. The bullish pin bar appears at the end of a bearish move or downtrend. It opens inside the body of the previous bearish candlestick and has a long lower tail and a small body. The pattern must be confirmed by a bullish candlestick that opens above the closing price of the pin bar. Now that you know the main element of the strategy, let’s move on to the setups.

Strategy Requirements

Instruments: Major currency pairs with tight spreads and high liquidity are available on the Standard account. Since we will be talking about a scalping strategy, we should pay attention to this detail. Timing: M15 or M30. Technical settings: key levels, trend lines, pin bar formation. Rules for a short entry

1.Mark the key levels and identify the trend lines.
2.When a pin bar forms at the important resistance level, place a “Sell” order
10-20 pips below the low of the pin bar.
3. Place a stop loss 20-30 points above the resistance line that caused the price rejection.
price rejection.
Place a Take Profit when the price is two to three times your risk for this trade or exits at the support level.
or exits at the significant support level.

Example

The chart above shows that the EUR/USD tried to rally after reaching the local trend line on the M15 chart. However, the bulls could not hold the positions for long. As a result, a pin bar was formed. After confirming it, we placed a sell order below the pin bar low at 1.03497 and a stop loss above the recent resistance line at 1.03598. We set a Take Profit level at 1.03194. As a result, we gained 302 points.

Rules for a long entry

1.Mark key levels and identify trend lines.
2.When a pin bar forms at the important support level, place a “Buy” order 10-
20 points above the high of the pin bar.
3.Place a Stop Loss 20-30 points below the support line that triggered the price rejection.
price rejection.
4.Place a Take Profit when the price is two to three times your risk for this trade or exits at the resistance level.
or exits at the significant resistance level.

Example

On the same EUR/USD chart, we consider a buy scenario. After the price slipped below the psychological level at 1.2000 and tested the area near the support zone at 1.1900, a pin bar pattern formed. We opened a buy order above the pin bar high at 1.20058 and placed a stop loss at 1.19870. With a risk to reward ratio of 1:3, we set the Take Profit at 1.20619. With this strategy we gained 560 points.