Pattern Trading: Bullish and Bearish Pin Bar Strategies

This suggests that the selling pressure may be exhausted, adding further weight to the potential for a bullish reversal. Look for a candlestick that is larger than average in terms of its range from high to low. This indicates significant price movement within the session, which is essential for a pin bar pattern. In this article we will teach you pin bar trading strategy from basic to advance level. The lower wick of the pin bar candle shows the bears were in control earlier but was eventually overcome by the bulls. Oscillators like RSI & stochastic reaching oversold/overbought zones reinforce the pin bar reversal signals at extremes.

Types of Pin Bar Candlestick Patterns

• Conversely, a bearish pin bar has a long upper wick and a small body in the lower portion of the range.
• In other words, wait for a pullback to a support level and watch out for a bullish pin bar.
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• It should be small and located towards one end of the candlestick—either near the high (for a bullish pin bar) or the low (for a bearish pin bar).
• Banks often need large volumes of orders in the same direction to take profits from their trades.

The more confluence added to a pin bar formation the more accurate it becomes. We can see in this daily chart of GBP/USD below a beautiful pin far formed at a previous support/resistance level with the up trend and also at a Fibonacci 50% retrace level. The more confluence you can combine with a pin bar signal the higher its accuracy becomes. Like other pin bars, hammers signal a shift in market sentiment, often forming at the bottom of a downtrend to suggest an upcoming upward move. The pin bar candlestick pattern is a crucial tool in technical analysis, used to pinpoint possible entry and exit points in trading. Trading the reversal pin bar is particularly effective when they appear at key support or resistance levels and within the context of the prevailing market trend.

Can a spinning top candle be considered a pin bar?

• In essence, bullish pin bars indicate sellers have dominated the market, but now their strength is waning.
• It can help you identify the direction of the trend if you can’t read it from the price waves.
• About half the time (even less on some currency pairs) the market won’t retrace 50% of the pin bar, leaving your buy or sell limit order unfilled.
• The former must have triggered a lot of buy limit and stop loss orders, which can force the price up, while the latter doesn’t.
• The pin bar is one of the most powerful and widely-used candlestick patterns in technical analysis.

Because it is a confluence area, the pin bar trading strategy explained earlier won’t work most of the times. The rejection is abrupt and powerful so the pullback into the Fibonacci area won’t come. After a bullish trend like the one above, bulls won’t give up that easy. That’s the reason why every pin bar trading strategy needs a stop loss. The equivalent of a pin bar in the Japanese approach is the hammer pattern. A hammer is a bullish pattern that forms at the bottom of a bearish trend.

This pin bar, characterised by a small body and a long upper wick indicated strong rejection of higher prices and foreshadowed the impending downtrend. The price for Apple stock was correcting for one year within a descending channel. Most bounces off the upper and lower bounds of the channel ended with a pin bar, signalling near-term reversals. The first and second rejections from the upper boundary formed bearish pin bars, indicating resistance and a continuation of the downward trend.

The Pinbar trading strategy

Below is a great example of a reversal that formed after price broke through support and then retested it from the other side as resistance. Sometimes it’s non-existent if the open or close occurs at the extreme end of the pin bar. The pin bar was the only pattern I used when I started trading over a decade ago, and I still trade them today because they work. In a bullish trend, the key is to identify the series of higher lows and connect the bottom with the first higher low. Morning and evening stars, bullish and bearish engulfing, not to mention the Doji candles, are only a few examples. When a stop loss is too close to the entry, it doesn’t allow for the normal price gyrations, so the chances of being knocked out before the trade takes off is high.

Enhancing Pin Bar Effectiveness with Technical Tools

The great advantage is that this pattern signals trend reversals that often promise a decent profit. It is worthy of your attention and can give you valuable information. At the same time, pin bars should be analyzed only within a context, and additional indicators should be taken into account for better decisions.

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This strategy helps traders capitalise on the existing market momentum, providing higher probability entry points. However, pin bars form very often on charts, and it’s crucial to learn how to distinguish false signals by waiting for additional confirmation before entering a trade. Carefully considering the broader market context and other technical indicators can significantly increase your edge.

Wait for a break of structure (on the lower timeframe)

So you can execute a sell trade immediately after formation of bearish pin bar or wait for price to retrace at least 50% of pin bar to execute a sell trade. Before going in depth of pin bar trading strategy you should learn about Support and Resistance. I especially appreciate what you’re saying about avoiding pinbars that are retracements on a lower time frame – that’s a smart distinction and a good entry filter to add. I find that having this wind at your back can really help (as I’m sure you know).Thanks again for the actionable tips. To avoid premature entries on false signals, pin bars work best when confirmed by the next candle closing respecting the pin’s high/low boundary or tail/body portion. pin bar trading A pin bar appearing outside Bollinger Band channel boundaries or at trendline breaks signals rejection of extreme levels and likely reversion ahead.

The entire premise of this pattern relies on a key level of support or resistance. As an R-multiple, the break of pin bar nose entry becomes a 1.1R, while using the 50% entry becomes a 3.25R. In hindsight the market did drop further, but it’s always a good idea to set your take profit at the first area or support or resistance. Over time you’ll become so comfortable with this pin bar entry strategy, that you won’t need to use the Fibonacci Retracement. As a side note, you might find that I don’t use them on all the charts posted on this site, but that’s only because I don’t want to unnecessarily clutter the price action patterns.

When money management rules accompany a trade, the confidence grows. Even if the stop-loss gets hit from time to time, it’s only reasonable. They detect classic patterns quickly, and then the algos position against the crowd. For this reason, when trading currencies, patterns like wedges, head and shoulders, triangles, flags, double and triple bottoms, cup and handle, do fail sometimes. There are many oscillator indicators available to traders, including stochastic, RSI, CCI, OsMA, Williams %R, and others.

This provides a tight stop loss with our stop loss just above or below the pin bar high or low and a large potential risk reward on the trade as a result. An easy way to spot a pin bar pattern is to first know what it looks like. Next, one of the easiest strategies to use is to use TradingView’s indicator tab and select all candlestick patterns.

If you must trade the pin bar on the smaller timeframe, wait for the pin bar to confirm the direction on the larger timeframe. Only then can you drop to the lower timeframe to look for trade entries in the direction of your pin bar forecast. This pin bar, just like its reversal counterpart, has its wick in the opposite direction to the continuation.

In the example above, we would place a sell stop just below the pin bar nose. But before we do, I want to touch on the concept of a favorable risk to reward ratio. You’re probably wondering what the two moving averages are all about. So there you have it, a simple pre-trade analysis using confluence factors.

A pin bar is going to act as a signal for a reversal of the trend that’s about to occur. Finally, look for a large wick protruding from one side of the candlestick. In the image above, there is a long lower wick indicating that prices traded much lower but were pushed back up by buyers. A pin bar pattern consists of a single candlestick price bar, which represents a sharp reversal and rejection of price from a key level (Support or Resistance). The long tail is created when orders pour in opposite to the direction the price was heading, causing it to whip back rapidly.

Pin Bars are in heavy traffic or are choppy, so range-bound markets should not be traded. There is no clear trend, and there are too many areas of interest for the price to stall. When price approaches the support zone wait for the closing of candlestick and formation of a Bullish Pin Bar candlestick.