As mentioned above, the pin bar candlestick is usually a reversal sign. As a result, when it forms, it usually sends a sign that the asset will move in the opposite direction. Therefore, the easiest approach is to open a trade in the opposite direction and then set a stop-loss at the upper side of the pin bar. A pin bar pattern consists of one price bar, typically a candlestick price bar, which represents a sharp reversal and rejection of price.
Of course if this were a bullish pin bar we would drag the Fibonacci Retracement from the bottom of the tail to the top of the nose. I find that they help to quickly identify the trend and also act as dynamic support and resistance. For example, in the case of the pin bar shown above, you could add a moving average on the chart. In this case, a more bearish chart pattern will be confirmed if the price manages to move below the moving average. In this case, the sell-stop will be triggered if the pin bar pattern is confirmed. At the same time, the stop-loss will help to protect you if the pattern is not triggered.
Bullish Pin Bar Candle Pattern and Fibonacci Levels
As an R-multiple, the break of pin bar nose entry becomes a 1.1R, while using the 50% entry becomes a 3.25R. There are two main types of pin bars as it relates to price action patterns that are taught in my price action course. Similarly, you could use the indicator like the Relative Strength Index (RSI). If the pin bar pattern forms in a period when the Relative Strength Index (RSI) is at an overbought level, it is a sign that a new bearish trend will happen.
Look for well-formed pin bar setups that meet all the characteristics listed in this tutorial. Pin bars work with all timeframes but are particularly powerful on the four-hour chart, daily, and weekly charts. As with other formations, they must be preceded by a directional movement in price. The most effective pin bars occur at key support or resistance levels and occur either with the underlying trend or within an established range. A pin bar is a type of candlestick pattern that suggests strong buying or selling pressure because of the long upper or lower wick, also called a shadow or tail. If risking $100, that’s about a $110 profit using the break of pin bar nose entry strategy and approximately a $325 profit risking the same $100.
In the GBP/USD chart above, you can see how the bullish pin bar candle pattern indicates that the bearish trend is over. Additionally, we added Fib levels from the bottom to the top of the previous price trend. A bearish pin candle, on the other hand, is only relevant if preceded by an upward move. A trade based on pin bars confirms best by an additional element from chart analysis. Horizontal support and resistance levels, trend lines, and Fibonacci levels will work great as confirmation. Because our first level of support (profit target) is so close to the pin bar setup, an entry on the break of the pin bar nose would violate our 2R minimum we set previously.
- Some may confuse the pin bar pattern with the spinning top candlestick pattern.
- Also, the spinning top generally signals indecision between buyers and sellers, while the pin bar actually indicates that the market is likely to move in a specific direction.
- It is important for all traders to realise that both veteran and professional traders immediately recognise significant candlestick patterns the moment they are formed.
- The pin bar reversal as it is sometimes called, is defined by a long tail, the tail is also referred to as a “shadow” or “wick”.
The key level adds extra ‘weight’ to the pin bar pattern, just as it does with counter-trend inside bar patterns. 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. The bearish pin bar pattern occurs at the end of an uptrend or during a correction in the market. The pattern suggests a bearish reversal and provides a short-sell trading signal. When bearish pin bars appear, the bullish momentum is weakening, and you can find the opportunity to enter a short sell position or exit a long position. A conservative trader might want to exit at this point, but the strength of the pin bar would tell a more aggressive trader to move the stop loss up and wait for a continuation.
What Is the Pin Bar Candlestick Forex Pattern?
The key to this pattern is that the pin bar must form in the direction of a trending market. So far we’ve seen pin bars that form on pullbacks as part of a larger trend as well as ones that form in ranging markets. However, besides a long shadow, there are also special market conditions to call a candlestick pattern a pin bar. HowToTrade.com takes no responsibility for loss incurred as a result of the content provided inside our Trading Room. By signing up as a member you acknowledge that we are not providing financial advice and that you are making the decision on the trades you place in the markets.
- Japanese candlesticks offer traders a powerful glimpse into the current market psychology that is driving price, and the pin bar is no different.
- The size of the body, the length of the accompanying wicks, and the all-important colour, which proclaims the winner for the period, reveal the nature of the fight.
- Moreover, as seen in the example above, the price dropped to the 50% Fib level and then climbed up again to the 61.8% Fib level.
- This signal shows that bulls tried to push the price higher, but their attempts got rejected.
- The entire premise of this pattern relies on a key level of support or resistance.
The opening and closing pin bar candles are placed in the previous bar called the left eye. Pin bar candlestick is part of the Price Action method, which is positioned as a further development of candlestick analysis. It’s fair to say that it’s not entirely clear what “development” is other than renaming the standard graphics models. It’s very similar to the traditional pin bar strategy, only it comes with a second dimension that makes it even more reliable. This illustrates the power of this strategy in that it can be successfully traded in both trending and range-bound markets. As with the traditional pin bar strategy, the stop loss should be placed above or below the tail of the pin bar.