PIN BAR Trading Strategy

PIN BAR Trading Strategy

In this article, I am going to discuss PIN BAR Trading Strategy in Detail. Please read our previous article where we discuss WRB Trading Strategy in Detail. At the end of this article, you will understand the following pointers in detail.

  1. What is a pin bar?
  2. Structure of pin bar
  3. Psychology behind pin bar
  4. How to use pin bar in our trading?
  5. One day trading strategy based on pin bar
Pin Bar Structure

Let’s understand a bearish pin bar. How it formed?

Phase1: After a strong extended up-trend has been in effect, the atmosphere is bullish.

Phase2: The price opens and trades higher. The bulls are in control.

Phase3: But before the end of the day, the bears step in and take the price back down to the lower end of the trading range, creating a small body for the day. The long upper wick represents that sellers had started coming in at these levels. A lower open or a red candle the next day reinforces the fact that selling is going on and sellers have now taken control

PIN BAR Trading Strategy

So basically pin bar is reversal pattern 

There are two types of pin (1) bearish pin bar, explained above and (2) bullish pin bar

Pin Bar Structure
Criteria to Identify Pin Bars
  1. First Requires an old support or resistance  in background
  2. Price rallies above resistance only to fall back below .Price closes below resistance and on or near its lows. reverse  for support
  3. The “wick” (or tail) should be at least 2 – 3 times the length of the body.
  4. The body should be completely contained within the previous day’s range. body either red or black
  5. The body should be present towards either the upper or lower extreme of the Pin Bar.
  6. The wick should stand out when compared to surrounding bars. The wick of the Pin Bar should be larger than the previous day’s trading range
  7. The following day needs to confirm
  8. The  volume can be either low ( no demand above the resistance ) or high (supply overcoming the demand above resistance ), reverse for support
Criteria to Identify Pin Bars

Pin bar do not always signal a reversal, so you’ll need to know how to tell when a pin bar has failed, and how to react accordingly. The significance of pin bar depend open (1)location ,where it appear in the trend ,(2)length of the wick, If  the Pin Bar wick is more than 4 times larger than the average trading range of the preceding bars. Then it will most likely become a (1)continuation pattern or (2)the wick will tested again for reversal. 

When presented with a massive Pin Bar my advice is to stay on the side liners and wait for a better opportunity to present itself as you have to risk too much capital in hopes of being profitable.

Let me explain you this through an example

PIN BAR Trading in Detail

Let me tell you very important information.

Smart Money only targets places with higher Volumes are and he collects them. Generally the places (reference points) are 

  1. support and resistance
  2. area on consolidation/accumulations on yesterday high/low .weekly high/low  etc. and 
  3. The beginning of the day
  4. The end of day
  5. Daily High and low.
Why they do?

The main objectives are:

  1. To get volume
  2. Avoid Slippage due to  big order
  3. Smart money testing demand above old resistance before moving down or testing supply below support before moving up
How they do?

They move the price above or below any reference point hitting the stop losses of either buyers or sellers, while same time Encourage traders to commit to positions in a wrong direction. Smart money induce traders to take the wrong direction by using sharp and aggressive moves near the high or low of the day

Let me explain when price reverse from resistance. As the early price is marked up, 

  1. Premature short traders are liable to panic and cover with buy orders.(stop hunts) 
  2. However, those traders looking for breakouts will buy, but their stop-loss orders are usually triggered as the price move back down. 
  3. All those traders who are not in the market may feel they are missing out and will feel pressured to start buying. 

Let understand through an example

PIN BAR Strategy

What happen next, price move down words? After trapping breakout long trader 

PIN BAR Strategy in Detail
Pin bar act as support and resistance 

Low of bullish act as support and high of the bearish pin bar act as resistance

Pin bar act as support and resistance 
Pin Bar and market context

To be able to trade Pin Bars effectively you need to be able to gauge the direction of the Trend and trade with it. Here are some key principles for trading pin bar

Pin bar work best in trending conditions

Ideally a Pin Bar should close in favor of the prevailing trend, for example if the trend is up then the Pin Bar should have the close higher than the open and should be a bullish Pin Bar. The opposite applies for a down trend.

Pin Bar and market context
Pin bar work best in trending conditions
A retracement to a prior resistance now- support area is a typically excellent trade

A retracement to a prior resistance now- support area is a typically excellent trade

A retracement to a prior resistance now- support area is a typically excellent trade
A choppy, range bound markets should not be traded

Pin Bars that are in heavy traffic or choppy, range bound markets should not be traded. The reason for this is that there is no clear trend and there are too many areas of interest for price to stall at.

 A pin bar should immediately follow through

If a  bullish pin bar  fails to rally away from the danger point and price hangs near the bullish pin bar  low, then something is likely wrong.

A pin bar should immediately follow through
Opening Pin Bar Trading Strategy
Opening  Pin Bar Trading Strategy
  1. Price gap up above previous day’s high(PDH)
  2. Opening candle close above PDH. (bullish pin bar)
  3. If low of the candle touches PDH and leaves a wick below then very high probability trade
  4. Entry above he high of the bullish pin bar candle
  5. Ensure that there is no resistance over head like big support/resistance
  6. SL below PDH or below entry candle
Opening Pin Bar Trading Strategy
Stop loss placements


Stop loss placements

The simplest and most likely method that you will profit from is to place your stop a certain distance beyond the high / low of the Pin Bar. 

What next

For better understanding read support and resistance article. As we explained above Pin bar best work from support and resistance level

The best way to learn about Pin Bars is to open up some charts and try and find some for yourself. Once you have found a selection of Pin Bars, try and figure out whether or not they are good or bad Pin Bars with respect to their form and the candles that precede them.