The Pin Bar is a powerful signal of price reversal in a trading strategy. It denotes that there has been a strong loss of upward or downward momentum.
The pin bar is a powerful price action setup that tells a fascinating story concerning price momentum and the possibility of an imminent reversal in price direction. Once familiarized with the pin bar formation, it is apparent from looking at any price chart just how powerful this pattern can be.
How to use this guide
To get the most out of this guide, it’s recommended to practice putting these Pin Bar trading strategies into action. The best risk-free way to test these strategies is with a demo account, which gives you access to our trading platform and $50,000 in virtual funds for you to practice with. Get your free demo account.
Once you’ve found a strategy that consistently delivers positive results, it’s time to upgrade to a fully funded live account where you can apply your newfound edge.
What is a Pin Bar?
The pin bar is a price action reversal pattern that shows that a certain level or price point in the market was rejected. The actual pin bar itself is a bar with a long upper or lower “tail”, “wick” or “shadow” and a much smaller “body” or “real body”.
Japanese candlesticks offer traders a powerful glimpse into the current market psychology that is driving price, and the pin bar is no different.
Characteristics of the Pin Bar Formation
- The pin bar should have a long upper tail or long lower tail called the “wick” or the “shadow”. They all mean the same thing. It’s the “pointy” part of the pin bar that literally looks like a “tail” and that shows rejection or false break of a level.
- The area between the open and close of the pin bar is called the “body” or “real body”. It is typically colored white or green when the close was higher than the open and black or red when the close was lower than the open.
- The open and close of the pin bar should be very close together or equal (same price), the closer the better.
- The open and close of the pin bar are near one end of the bar, the closer to the end the better.
- The shadow or tail of the pin bar sticks out (protrudes) from the surrounding price bars, the longer the tail of the pin bar the better.
- A general “rule of thumb” is that you want to see the pin bar tail be two/thirds the total pin bar length or more and the rest of the pin bar should be a third the total pin bar length or less.
- The end opposite the tail is sometimes referred to as the “nose”
Underlying Psychology of the Pin Bar
Understanding the story behind the pin bar is essential. Let’s use the red candlestick pictured above. When the period opened, buyers took immediate control of the market and pushed prices up aggressively. As price reached the top of the wick, sellers were able to come into the market with sufficient supply to hold off higher prices. Furthermore, not only were sellers able to bring resistance into the market, but they took complete control of the price, and a market reversal occurred. Sellers began putting immense pressure on price, and the price fell all the way back down to the period’s open, which is why we have a very long wick. Then, sellers pushed prices back down below the period’s open, which is even further confirmation that they are now in complete control of the market.
Bullish Reversal Pin Bar Formation
In a bullish pin bar reversal setup, the pin bar’s tail points down because it shows the rejection of lower prices or a support line. This setup very often leads to a rise in price.
Bearish Reversal Pin Bar Formation
In a bearish pin bar reversal setup, the pin bar’s tail points up because it shows the rejection of higher prices or a resistance line. This setup very often leads to a drop in price.
How to Trade a Pin Bar
When you see the Pin Bar and you want to place a trade, you can do so via derivatives. Derivatives enable you to trade rising as well as declining prices. So, depending on what you think will happen with the asset’s price when one of the Pin Bar appears, you can open a long position or a short position.
Follow these steps to trade when you see the Pin Bar:
- Trading any type of chart pattern requires patience and the ability to wait for confirmation. Pin Bar is used most to confirm the direction of the trend.
- To get started trading with Pin Bar, open an account. Choose between a live account to trade straight away or practice first on our demo account with virtual funds.
- Choose your financial instrument. Pin Bar can be spotted in most financial markets, especially those that are more volatile, such as forex, cryptocurrencies, and stocks.
- Explore our online trading platform. We offer a wide range of technical indicators, as well as providing a range of order execution tools for fast trading, which in turn helps you to manage risk.
The below strategies for trading Pin Bars are merely guidance and cannot be relied on for profit.
Pin Bar trading rules
The pin bar formation is a reversal setup, and we have a few different entry possibilities for it:
- “At market entry” – This means you place a market order which gets filled immediately after you place it, at the best “market price”. A bullish pin would get a “buy market” order and a bearish pin a “sell market” order.
- “On stop entry” – This means you place a stop entry at the level you want to enter the market. The market needs to move up into your buy stop or down into your sell stop to trigger it. It’s important to note that a sell stop order must be under the current market price, including the spread, and a buy stop order must be above the current market price, including the spread.
On a bullish pin bar formation, we will typically buy on a break of the high of the pin bar and set our stop loss 1 pip below the low of the tail of the pin bar. On a bearish pin bar formation, we will typically sell on a break of the low of the pin bar and place a stop loss 1 pip above the tail of the pin bar. There are other stop loss placements for my various setups taught in our advanced price action guide.
- “Limit entry” – This entry must be placed above the current market price for a sell and below the current market price for a buy. The basic idea is that some pin bars will retrace to around 50% of the tail, so we can look to enter there with a limit order. 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.
To effectively trade the pin bar formation, you need to first make sure it is well-defined, (see pin bar characteristics listed at the top of this tutorial). Not all pin bar formations are created equal; it pays to only take the pin bar formations that meet the above characteristics.
Next, try to only take pin bars that are displaying confluence with another factor. Generally, pin bars taken with the dominant daily chart trend are the most accurate. However, there are many profitable pin bars that often occur in range-bound markets or at major market turning points as well. Examples of “factors of confluence” include but are not limited to strong support and resistance lines, Fibonacci 50% retracement levels, or moving averages.
Pin Bar trading strategies
These two strategies have a common thread – they are both the byproduct of news. Whether it be something that was just announced or a more gradual flow of news that causes market sentiment to either fluctuate or remain constant.
In fact, all trading strategies are a byproduct of news in one way or another. However, the pin bar and inside bar price action really embody the essence of how news can influence a market. Here’s why…
Pro Tip: Stick to the higher time frames (4 hours and daily) in order to get a better feel for the impact of a major news event. This will help to eliminate the “whipsaw” effect that is common in the lower time frames.
Some of the best pin bars form on the back of a major news event. In fact, one of the most popular setups is the NFP pin bar. This is because Non-Farm Payrolls (NFPs) are released at 10:30 pm and the 4-hour candle on New York close chart closes at 11 pm, giving the market thirty minutes to react. The timing of a news event like this can often cause the price for US Dollar pairs to rise or fall quickly, thus forming a 4-hour pin bar. Of course, it isn’t always the case, but when an NFP pin bar forms at a key level, it’s often worth taking.
The inside bar can be thought of as the opposite of the pin bar. While the pin bar represents a volatile push in either direction, the inside bar represents consolidation after a large move.
So, whereas the pin bar forms as news are released, the inside bar often forms the day after a news release. Therefore, the inside bar setup is often referred to as a type of breakout strategy.
Pro Tip: While the pin bar can be traded on the daily or 4-hour time frame, the inside bar is best traded only on the daily time frame.
Final notes about Pin Bar
Keep in mind that these are general trading concepts that build on the collective experience of traders. Even though a lot of traders believe that these chart patterns have a bearing on the future direction of the price there are no guarantees in trading.
Like anything else in life, pin bar trading takes education and then practice, so let’s get started by learning some facts about pin bar trading:
- A Pin Bar is “NOT” a hanging man or Doji candle. It’s a unique candle that shows rejection of a level via an obvious spike, or tail, much larger than the entire body. It’s only a valid pin bar “setup” if it forms in the correct place, otherwise, it's nothing to take notice of. In other words, just because a candlestick reversal pattern has the form of a pin bar does mean it’s a trade-worthy pin bar signal.
- We want to trade a pin bar in the opposite direction the spiky tail (also known as the shadow) is pointing. So, a bullish rejection pin bar is one that rejects lower prices and thus tips off to take a long position or buy the market, while a bearish rejection pin bar is one that rejects higher prices and thus tips us off to take a short position or sell the market.
- Trading the pin bar strategy on higher time frame charts like the 4-hour and daily time frame is a much higher probability way to trade them than trading them on the 5-minute or other low time frame charts.
- We don’t just trade any old pin bar, because not all pin bars are created equal. We want to trade pin bars that form at swing lows in an uptrend or at swing highs in a downtrend. Ideally, we want to see a pin bar make a rejection or a “false-break” of a key level. Essentially, we want to trade pin bars with confluence, or at high-probability levels in the market.
- We can also watch major EMAs (exponential moving averages) for pin bar setups. The main EMAs that we use are the 8 and 21-period EMAs on the daily chart time frame.
- Pin bars can be traded successfully in both trending and range-bound market conditions. This fact makes it one of the most versatile day trading or swing trading techniques out there.
Free trading tools and resources
Remember, you should have some trading experience and knowledge before you decide to trade with price action indicators. You should consider using the educational resources we offer like CAPEX Academy or a demo trading account. CAPEX Academy has lots of courses for you to choose from, and they all tackle a different financial concept or process – like the basics of analyses – to help you to become a better trader.
Our demo account is a great place for you to learn more about leveraged trading, and you’ll be able to get an intimate understanding of how leveraged trading works – as well as what it’s like to trade with leverage – before risking real capital. For this reason, a demo account with us is a great tool for investors who are looking to make a transition to leveraged trading.
Users/readers should not rely solely on the information presented herewith and should do their own research/analysis by also reading the actual underlying research. The content herewith is generic and does not take into consideration individual personal circumstances, investment experience or current financial situation.
Key Way Markets Ltd shall not accept any responsibility for any losses of traders due to the use and the content of the information presented herein. Past performance and forecasts are not reliable indicators of future results.