Today we kick off our three-part series on price action analysis by taking a close look at how to prosper from trading the pin bar strategy. We’ll first define the pin bar take a look at its anatomy and then show illustrations of how to trade pin bar setups But first:
A Little Introduction To The Pin Bar Strategy
The pin bar pattern represents a strong rejection and reversal of price. The rejection usually occurs at a very crucial stage in market activity. The good news is once you familiarize yourself with this pattern you stand the chance of laughing all the way to the bank. The first question we need to ask ourselves is:
What Is a Pin Bar?
Well, the pin bar is a thin bar with the following attributes: a long upper or lower tail, wick or shadow, and a smaller body or real body. The pin bar also belongs to the candlestick family(We’ll touch on candlesticks real soon)- very popular with forex traders because they’re easy on the eyes as far as price action goes.
Anatomy of the Pin Bar
- The pin bar has a long tail or wick as it’s popularly known.. As indicated in the above graphic, the tail is the pointed part of the bar that resembles a tail and which indicates rejection or false break of a level.
- The body represents the area between the open and close of the pin bar. And it’s usually colored white or another color, when the closing price is higher than the open price. However, if the body color changes to a darker color, or some other color, then the closing price becomes lower than the opening price.
- The open and close of the pin bar should be close to or equal to the same price.
- The tail, popularly known as the shadow protrudes fr
- The tip of the tail is referred to as the nose.
- The pin bar has a long tail or wick as it’s popularly known.. As indicated in the above graphic, the tail is the pointed part of the bar that resembles a tail and which indicates rejection or false break of a level.
- The body represents the area between the open and close of the pin bar. And it’s usually colored white or another color, when the closing price is higher than the open price. However, if the body color changes to a darker color, or some other color, then the closing price becomes lower than the opening price.
- The open and close of the pin bar should be close to or equal to the same price.
- The tail, popularly known as the shadow protrudes from the other bars. For your sakes, you’ll be better off with a longer bar
Now we’re gonna see illustrations of how to trade pin bar setups with respect to bullish and reversal formations.
Bullish and Reversal Pin Bars
The above patterns represent bullish and reversal pin bar patterns. The bulish bar is on the left while the bearish pin bar is on the right.In a bullish reversal set up, when the pin bar’s tail points down, it suggests rejection of prices or a level of support(either support or resistance). This triggers an upward trend or rise in price, and when that happens, it’s time to make a buying trade.
Bearish Reversal Pin Bar
The pattern on the right of the bullish reversal pin bar is the bearish reversal pin bar. This the complete opposite of the bullish reversal pin bar. Here prices are rejected at the level of support, resulting in a drop in price. This triggers a downward pattern, and when that happens, it’s time to sell.
How To Trade Pin Bar Strategy
If you want to make serious money with the pin bar strategy, make sure it’s well defined. Refer to the characteristics of the pin bar we discussed earlier if you find yourself in sixes and sevens.Why do I say so, because not all pin bar patterns look the same. So it pays to trade the pin bar patterns that satisfy the above characteristics. But just to clear any clouds swirling in your head, let me show you what a defined pin bar looks like.
This is a pin bar formation in a downtrend. As the two arrows suggest, the pin bar has a long narrow wick and a small body. So keep that in mind when looking out for the pin bar pattern.
Also,make sure that you trade pin bars that display confluence with another factor. Sure, some of you are scratching your heads like “What does he mean by confluence.Well, confluence is where two or more levels come together on the chart. The alignment of these levels creates opportunities for trade signals. A classic example of pinbars displaying confluence is at the support level where you have multiple trade signals long the line of support. Let me show show you a classic example of confluence of factors along the line of support
This,ladies and gentlemen, is a classic example pin bars displaying confluence with another factor along the lines of support and resistance. The three arrows represent trading signals along these two lines. When such a convergence, occurs, prepare to ring the cash register.If you want to sink your teeth further in multiple confluence of factors stop by my Something Called Multiple Confluence of Factors post.
Interested in getting into price action trading and a career in forex trading?
Read the following posts: Why Forex Trade Is So Popular and What Is Price Action?
That’s a wrap on “How To Prosper From Trading The Pin Bar.” Tomorrow we’ll touch on the second of our trade setups- The Fakey Pattern. I’m sure you’re looking forward to that. Till next time take care.
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