Introduction to Pin Bars in Forex Trading and How to Effectively Take Advantage of ThemThe pin bar formation is actually a price reversal pattern consisting of three bars. The term “Pin Bar” is an abbreviation for the term “Pinocchio Bar”. 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 setup 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.
The best pin bars will close below the open if the wick is to the upside, or above the open if the wick is to the downside. 
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 nose or tail of the pin bar sticks out from the surrounding price bars,
the longer the nose of the pin bar the better.
Examples of Candlestick Pin Bar Formations
The pin bar formation can be a very valuable tool in your arsenal of forex trading setups. The best pin bar setups 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. Add this powerful setup as one of your main forex trading methods and you will wonder how you ever traded without it.
What Time Frame Is the Best For The Pin Bar?
In technical analysis, not all price patters are created equal. This means that certain patterns carry a higher probability of success than others. In relation to timeframes, a price pattern on a higher timeframe will always have a higher probability of accuracy than a similar price pattern on a lower timeframe. The reason is simple. A higher timeframe pattern contains a larger amount of data; therefore, there is a higher probability of reliability. For example, a pin bar that forms on a 1 minute of 5 minute chart only contains 1 to 5 minutes of data. All sorts of random forex news events could have happened during that 1 minute to form the pin bar. The essential story of the pin bar that is explained at the beginning of this article may not be true on the very short timeframes.
However, when these pin bars form on the higher timeframes, they are very reliable. The best timeframes to look for pin bars are the Daily, 4 Hour, and 1Hour. The Daily and 4 Hour tend to be the most reliable. While the 1 Hour is still a solid timeframe, the signals tend to be more short-term and offer smaller payouts than the signals on the 4 Hour and Daily. When a pin bar forms on the 4 Hour and Daily it tends to be signaling a possible reversal in trend that could last for several hours, days, or even weeks on the Daily Chart. Signals on the 1 Hour, however, tend to signal smaller intraday reversals. Thus, smaller payouts tend to result.
The
body of a pin bar must be no more than 20% of the measurement of the bodyto the tip of the wick . Therefore, if the body is 8 pips and body to end of wick is 25 pips, the candlestick would not be classified as a perfect pin bar. If the wick to body is 100 pips, then the body should be no more than 20% of 100 pips, or 20 pips. If it is a few pips more, it can be okay, but is should be very close to 20 pips or less.
The nose should not be very long at all. If the nose is to long, the candlestick will form what is called a doji, which is a candlestick with a small body and equal length wicks on each side. A perfect pin bar will have a very long wick on 1 side and a very small wick, or even no wick, on the other side.
Location is of extreme importance. Pin bars should not be traded in the middle of consolidation or a sideways market. Oftentimes in consolidation, pin bars will form, but these signals are much less reliable. Ideally, there should be no candles to the immediate left of a pin bar wick. Instead, there should only be open space. Let's examine a few pictures.
The above pic is an example of a perfect pin bar forming in the middle of consolidation. Even if the pin bar's form is perfect, as the one in the above pic is, it has to form in the proper location!! This one does not, so you should not trade it. You must find pin bars that form at the top and bottom of moves.
In the above picture, you can see that the pin bar forms at the bottom of an extended move. This is where you want a pin bar to form.
Entry and Stop-Loss
The entry of a pin bar should be on the break of the nose, and the stop-loss should always be placed just beyond the tail. Thus, the stop loss will generally be larger the higher the timeframe. For example, on the 1 Hour, a pin bar will usually call for a 25-40 pip stop, while the 4 Hour will be much bigger, and the Daily can be several hundred pips.
Profit Targets
The best way to set profit targets when trading the pin bar is by using price action. Take the trade to the nearest key level of support/resistance, which should be at least equal to the stop-loss.
Sources:
http://www.learntotradethemarket.com/forex-trading-strategies/pin-bars-forex-trading-definition/http://www.workoninternet.com/business/investment-financial-strategy/future-exchange/55836-the-pin-bar.htmlhttp://www.forextraders.com/forex-analysis/forex-fundamental-analysis/the-pin-bar-one-of-the-most-powerful-price-patterns.html
Topic: Introduction to Pin Bars in Forex Trading (Read 621 times)
