Also known as Pinnochio bars, a pin bar is one of the most reliable candle formations that you can see on the forex chart. In fact, a plethora of traders consider it to be one of the most powerful candlestick patterns for trading.
Pin bars are found on all instruments of trading and in all time frames. They can either be found at the top or bottom of a trend run that is signaling reversal or at the context of a trend which in this case signals continuation. Therefore, the key to profiting with pin bars is to identify trend reversal or continuation in advance.
What do pin bars look like?
There are high chances that you’ve already seen a pin bar on your Rakuten online trading chart, and if not, it might be that you weren’t aware that you were looking at one per se. A pin bar is a candlestick with a unique structure. It features a long candlewick, small body, and a small candlewick either at the top or bottom provided it is opposite the long candlewick. One important rule you need to know to identify a pin bar is that the long wick should always comprise of at least two-thirds of the entire candle. To make it visually easier to spot a pin bar on a chart, you can program a Pin Bar indicator on your preferred trading platform.
Even though a pin bar candle can be frequently seen on Forex chart, the best tradable ones are usually found at the end of an impulsive wave, extending outside of the preceding price action. When seasoned traders notice a pin bar sticking out below or above the recent price action after a prolonged move, they might prepare to trade regardless of the trend in attempts of catching the reversal price momentum.
What do pin bars represent?
You can think of pin bars as a price rejection zone where prominent market participants have rejected price from staying at a specific price level. If before being completed a pin bar candle sees a large body in the direction of the trend, it creates an impression that the trend might continue with strength. However, if there is contrary pressure, the candle closes near its open level ultimately appearing as a big candle wick. Typically, the bigger the wick, the bigger the lie which refers to an unsuccessful big candle body. This is where the name Pinocchio comes from. The bigger a pin bar is, the stronger the reversal pressure is expected to be.
The price at which a pin bar occurs is the key to identifying the difference in real time. If you want to know whether a bin bar is a real reversal or fake you need to ‘look left’ at prior price action. For the reversal to be real, a pin bar must occur at a prior significant resistance or support level. If the pin bar is pushing through a prior resistance or support level, then the probability of the pin bar resulting in a reversal is high or at least a significant retracement of the prior price action.
How to profit with pin bars
If you’re new to pin bar trading, it is advisable to start with a paper or demo trading platform until you fully understand how Pinocchio Bars work. Picking up pin bars in real life requires extensive practice upon which you might want to expend real money. The reason my demo trading is advised is that trading with real money stirs up emotions that can cloud your observation and learning of any new strategy.
However, when you use a simulated platform, you have the chance of gaining muscle memory of the trading strategy without necessarily getting distracted by your emotions. Once you’ve gotten a grip on the strategy, you won’t have to worry about those details as you battle with the emotions of trading with real money.