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The pin bar is a prevalent price action strategy.
It makes a candlestick shape, much like Pinocchio’s nose.
Hence, the “Pin bar” is a modified word for the term Pinocchio Bar.
The pin bar represents sharp reversals of trends or rejections of price levels.
These frequently appear when there are strong trending moves in the market, creating a break in the momentum of the price.
This break is called a “lie” or false move because the price can come back to the previous candle’s range.
Short-term traders mostly enter during price breaks. Seeing a candle, they can be deceived in the wrong direction.
However, pin bars can be pretty valuable for us during price reversals, as we shall see.
How Do Pin Bars Look?
They have a long tail called a shadow, or wick.
The longer the shadow, the more reliable the formation.
This tail depicts that the price area was rejected. It also shows that the price will now start moving in the opposite direction to which the tail is pointing.
The real body is much smaller, and I the area between the open and close of the pin bar.
A bearish pin bar has a longer upper wick signifying higher prices being rejected. In contrast, a bullish one has a longer lower wick and shows that lower prices were rejected.
How to Enter a Market with a Pin Bar?
Entering it at the market means we enter at the set market price.
The second way is to enter on a 50 % retrace of the pin bar. This means that we have to wait until the price is retraced halfway from the pin bar.
At this 50 % level, we would have already placed an entry limit.
Another way we can enter is at the on-stop entry point. This is just above or just below the high of the pin bar.
How to Trade Using Pin Bars?
The best way to trade in any market is undoubtedly trading with the trend.
Pin bars can give us the green light to enter a market with a high probability of entry. That, too, with a decent risk to reward ratio.
We can also trade against a trend.
For this, we need to look out for pin bar reversals – where the price significantly moved upwards or downwards.
When we trade with other price action patterns, we call it an inside pin bar combo pattern.
These work best in trending markets.
It is ubiquitous to see an inside bar forming in the same range as a pin bar.
Lastly, we have a double-pin bar pattern. This is when we have back-to-back pin bars.
We can trade as we do normally, using this. We will also have slightly more positive confirmation as they represent two consecutive price rejections.
Bottom Line
Pin bars represent reversal situations, picturing how bulls and bears fight to move the price upwards or downwards.
There are different ways to enter a pin bar while trading, each with its own ways of trading.
References and Citation: https://www.youtube.com/watch?v=7j9p-Lgv8lw , https://www.fxcc.com/what-is-pin-bar-trading-strategy-in-forex
