Here is an Example of a Pin Bar that is followed by a consecutive Pin Bar that is also an Inside Bar. This type of price behavior just adds to my weight of evidence style of trading.  When this type of price action happens it denotes that there is an increased probability that this will be a high probability trade and has a higher probability of being successful. Here is a chart of the price action.

What are the entry triggers for this trade:

• Pin Bar Formation
• Consecutive Pin Bar formation
• Inside Bar formation
• Rejection of the Central Pivot Point (significant support level)
• Major round number level 1.3800(significant support level)

This is what I refer to as my weight of evidence, I need multiple confirming factors that indicate a high probability trade.  This trade went on to reach the R1 profit target four hours later. There was also plenty more profit potential if a trailing stop was utilized on a part of the position.

These trading opportunities occur all the time and in all the currency pairs, it is just a mattter of waiting for the best setups.

Perryg

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The Pin Bar Candlestick Reversal Pattern in my opinion is the single  most powerful candlestick reversal pattern there is! When identified correctly and traded the right way it will produce consistent profits time and time again. This individual single bar reversal pattern is enough to make a living off of when managed correctly.

In this post we will look at what is a Pin Bar, the difference between a great Pin Bar Reversal and an average reversal pattern. Where to look for Pin Bar reversal patterns, the correct way to trade Pin Bars, the best position to  place your stops and finally is there a good time to take a Pin Bar Trade.

What is a Pin Bar ?

A Pin Bar is a candlestick pattern where the body of the candlestick is very small and has a very long wick.  There are two types of Pin Bars a Bullish Pin Bar and a Bearish Pin Bar.

A Bullish Bar is represented by a small body at the top and a long wick below, this indicates that price was sold down by the bears and then immediately bought straight back up by the Bulls. In a perfect world the close is above the open for a bullish pattern and no wick at the top of the body. The opposite of this is true for a bearish pattern.

I stated that this was the case in a perfect world but if you limit yourself to this perfect pattern you will be missing out on an awful lot of good trades. This pattern comes in many forms and it is up to the discretion of the individual as to what identifies a tradable Pin Bar and a non-tradable one. Here are some examples of Pin Bars that I find are acceptable and will not hesitate to initiate a trade from.

This example shows all bullish Pin Bars, bearish reversal patterns are the exact opposite. note: for the sake of this article I will refer to bullish reversals patterns as blue in color and bearish reversal patterns as red in color.

What to look for in a Pin Bar

• I am looking for a small body to the bar, the smaller the better
• At a minimum I am looking for a wick that is three times the length of the body, but the longer the better. A Pin Bar with a wick that is ten times the length of the body has a much higher probability than one with much less.
• Location, location, location is just as true for a  Pin Bar Candlestick as it is for real estate. I will get into this later in the article but it is just as important as the reversal pattern itself.
• The wick must stick out from the surrounding price action

When It’s not a Pin Bar Reversal

• When it doesn’t meet the above criteria
• when it has a long wick protruding past the close or opposite the long wick, this then forms more of a spinning top style pattern and is far less reliable
• When it appears in a less than favorable location

Where to look for a Pin Bar Candlestick

• Previous major swing highs or swing lows
• Any major levels of Support and Resistance
• Pivot Points
• Trend Lines
• Round Numbers
• At Fibonacci levels
• Where there is strong confluence or a combination of many of the above points

Here are some examples of the Pin Bar in play

The way to trade the Pin Bar Reversal

In my opinion there is only one way to trade the Pin Bar Candlestick and that  is to always and I do stress ALWAYS wait for the bar to close. Once the bar is closed only then can you be certain that the Pin Bar has formed correctly. Once the bar has been identified it is just a matter of insuring it has formed in a high probability location, then quite simply open a position using your own risk parameters.

Stop placement when trading the Pin Bar Candlestick

Stop Loss placement is the simplest part of the whole equation. In my opinion there is only one place to put your stop when taking a Pin Bar play and that is at the extreme of the long wick, I generally place mine the distance of the spread plus five pips.

The reason for this is quite simple, it is quite common for price to re-test previous major levels. This just so happens to be where we are taking our trades and there is nothing worse then taking a position only to see it get stopped out and then see it go and hit your profit target.

Is there a good time to take a Pin Bar

There are times when these Pin Bar reversals can be a higher probability trade, this is really only relevant if you are trading the lower time frames, for example the 5min, 15min, 30 min and 1 hour time frames. These times are

• Frankfurt open
• London 0pen
• US open
• Sydney open

The reason for this is these are times when there a fresh new players coming into the market, if enough of these players have a different opinion than the current market the gross effect of this is they can turn the market on a dime.  It is this sort of market behavior that creates these Pin Bar Reversals.

Conclusion

The Pin Bar Candlestick reversal Pattern is one that not only happens to occur quite frequently, it is also one of the most powerful reversal patterns available to a forex trader. This pattern can be traded on any time frame and is best traded from major price action levels like previous support and resistance or pivot points and the like. The better the Pin Bar formation the higher the probability and the better the location the higher the probability. Only take the best Pin Bars in the best locations and the rewards will speak for themselves.

So Where to from Here

The Pin Bar is only part of the plan, what you now have is an excellent entry strategy for a forex trading system.  To complete this  system you still require a Pin Bar Money Management Strategy, a Pin Bar Trade Management Strategy and a Pin Bar Exit Strategy.

Once you have established  these criteria, there is one final thing to do Back Test! Back Test the system and confirm  that you have a profitable system.

Click Here to Get This Revolutionary Trading Software and Stop Losing Money Now!

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With any trading method you absolutely must have a set of rules to abide by, these rules set boundaries for your trading activities and helps to limit your emotional input whilst trading.  They will also help keep your trading structured. The following are the rules that I have in place for the Pivot Point Methodology I am working with currently.

RULES.

1. Anything can happen

What this means is the market can go anywhere it likes, so don’t become fixated on a specific direction because you have seen a particular signal or pattern. The market may not agree with your analysis and do the exact opposite for whatever reason so always keep an open mind and be prepared to change your oppinion.

2. Always use a stop loss order

This should be pretty self explanatory but never and I do mean never put on a trade without putting on a stop order at the same time. There is literally only one thing that we have any control over in the markets as a trader and that is our level of risk, this risk is our stop order and without a stop we have unlimited potential for loss so just use them.

3. Two strikes and your out

For me if I have two losing trades that’s it for the day I stop trading and close down my platform and go do something else.  For me after two losing trades I feel I can be mentally off my game and may not see things as clearly as I should. Also it is much harder coming back from 3 or even more losses. This helps me to protect my capital and allows me to not become to emotionally battered so I can get up the next day and trade with a clear head.

4. Set trading hours

I have specific trading hours and only trade within them, my trading hours are between 2am EST and 10am EST. Why these hours, well because I catch the Frankfurt open, the London open and the New York open.  These are in my opinion the best times to trade as that is when new players are coming into the market and is a great time to capture reversals in the current trend or continuations of the current trend as these new players all  get aboard the action.

5.Only use my specific signals to get into the market

In other words in my methodology I have specific signals that I look for to get into the market, an example of this would be a pin bar so the trick is to only use these specific signals  for my entries.  I usually get myself into trouble when I act on feelings or hunches about the market and this generally results in further losses.

6.Protect profits and move stops to break even

I am quite aggressive at moving my stops to break-even as I would much prefer to get stopped out for nothing than take a loss.  Yes sometimes the trade then goes your way and reaches your profit target SO WHAT I didn’t lose any money so I am happy. There will always be another trade so don’t ever forget that.

My philosophy is that the best trades go your way immediately and never look back, these are the trades that I endeavor to capture and am happy to get stopped out some times for nothing rather than take a loss.  This for me is quite discretionary but a good rule of thumb would be that when in profit the equivalent of your stop amount then move the stop to break-even.

7. I don’t have to trade every day

There will always be another trade so it is not necessary to trade every day, every so often I just take the day off and do something else and this generally refreshes me and lets me start the next day with a clear mind.

8. Trail stops with a portion of every trade

I have lost count of the number of times I have exited a trade for profit to only watch it go another 150 pips in my direction. By using a trailing stop on a portion of your position you can potentially capture a larger portion of these moves. Just think TREND DAY.

9.Always take profits

I always have a take profit order in place and never hesitate,  just take the profits as that is what it is all about, making money.

10.One win and your done

As soon as I have one winner on the table for the day I am done, no more trading until the next day. Where there is a partial position with a trailing stop it just handles itself and requires no input from me.  The reason that I do this is it prevents me from giving back my profits for the day.  This is a personal thing that I have found has really helped my trading and my profits.

Relax and Enjoy

This is not one of my rules more of a mantra I suppose.

Do it cause you love it that’s my motto.  If your not enjoying it then the chances of you being successful are highly unlikely.

Trade Well

Perry

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Still not convinced that these Pivot Points have any merit, well just have a look at the following chart of last night’s price action.

click image for larger view

Note how price formed an Inside Bar on the daily open at point A indicating a potential reversal and then  dropping directly to point B which just happens to be exactly at the S1 pivot point. This was followed by a huge run straight up to the central pivot point at point C and even here you can clearly see players taking profits.

Just by observing the price action around these Pivot Points  it becomes quite obvious that there are plenty of orders taking place in these areas, clearly there are many other players using these same Pivots.

They are sometimes referred to as floor Pivots which is because they are used by many floor traders and have been for a very long time. Many of these floor traders are trading quite large volume and therefore generating some of the huge moves that we do witness in the market. The goal here is to ride on the shirt tails of these same floor traders and capture some of the moves that they are.

One of the greatest advantages that you gain by trading with pivots is you have definite areas where not only to place your entries but also where to take profits. Profit taking is one of the most challenging skills in trading and just with the use of these Pivot Points you have a clear and concise place to position your orders.

While most indicators are what we call lagging indicators because they are derived from the price action that has already happened Pivot Points are a leading indicator as they are indicating these levels long before price arrives.

Trade Well

Perry

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Here is a perfect trade example using pivot points, in the following chart you can see how the huge pin bar formed at the R3 level clearly rejecting it and indicating the potential for a reversal in price.

To mange this trade I take two positions to divide up my risk, on eighty percent of the position I set the take profit at the next pivot which in this case was the R2 pivot which was at 1.4891.  On the other twenty percent of the position I set a trailing stop in anticipation of the possibility of a trend day.  I have previously added this into my back testing and the results have proved to be quite good.  There are many times when the market just takes off and never looks back,  it is these times that a strategy like this can really capture some great profits.

You can just imagine my surprise when I awoke this morning to find that I am still in this trade due to this strategy and currently up 140 pips.

click image for larger view

Where will this trade go?  Well your guess is as good as mine and the best strategy I have found is just let the trailing stop do its work and I get stopped out when it is touched.  The market can do anything and go anywhere and there is always the possibility that we could see a second or subsequent trend day and capture a portion of it also.  This is where I just have to be patient and let the trade play out.

Look closely at the following chart and take notice how price reacts to these pivot points, you will notice at every level there is profit taking and further trading opportunities if you were that way inclined.  You can clearly see profit taking happening at the R1, CPP and the S1 and S3 levels.

click image for larger view

These pivot points are extremely powerful and if you are a day trader and you are not currently using them I would seriously recommend you place them on your charts and just see how accurate and predictive they are, you may be quite surprised.

I have been doing a lot more back-testing on this trading system and will update this info in my next post.

Trade Well

Perry

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click image for larger view

Two trades were taken overnight, the first is circled in the previous image where you can clearly see how price formed a near perfect twin tower pattern right on the S1 pivot point. This trade was then stopped out an hour later for a loss of 24 pips.  This is profit taking happening as many other like minded traders who were previously short are taking profits at the pivot point. There is no way to distinguish the difference between this profit taking and a reversal which was what I anticipated this price action to be.  This is all just a part of trading and the reason why I use stops.

The second trade for me happened two hours later and was initiated after price confirmed that it was unable to significantly penetrate the S1 pivot point.  Here is a chart to help explain what I was seeing at the time.

click image for larger view

Price formed a spinning top just below S1 and was then followed by some solid buying as price pushed cleanly up through the pivot and closed well above it.  This was still not enough to get me into a trade though, it was the following price action that got me aboard the move.  It was when price retraced to the pivot and then clearly rejected it with the 2 spinning top/pin bar style candles that I entered the move. It was these buyers entering the market that finally convinced me that the odds favoured a move to the upside.

click image for larger view

Half of the position was taken of at the daily open for 50 pips and the stop was moved to break even. The remainder of the position was taken off at the central pivot point for 101 pips, this was a good days trading and the predicative power of the pivot points was plain to see on the day I feel. Pivots are one of the few leading indicators out there and if you do day trade and you are not using them it might be wise to put them on you charts and observe how price reacts to them, you may be pleasantly surprised.

Trade Well

Perry

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click image for larger view

When the first twin tower reversal pattern formed which was straddling the central pivot point and also clearly rejecting the daily open line I figured this was a good place to get short.  The price action that ensued to say was volatile is an understatement, price came all the way up to the daily open with a lot of momentum and at the time I figured this trade is dead in the water.

It then dropped again rapidly to ultimately form another reversal pattern an evening star pattern, this back and forth price action went on for the next couple of hours.  Price ultimately formed a pennant and eventually broke down and ran all the way to S1. What kept me in the trade was the continuing formation of reversal patterns which indicated to me that price would eventually go down, also the fact that all this was happening below the daily open was extra evidence supporting my analysis.

Note that all these areas that I am talking about being support or resistance are just that AREAS.  It is not a line in the sand, I look for price action in relation to the area and take action accordingly.  Price sometimes comes up short of the area and other times pushes right through before reversing, this is where discretion comes into it and a lot of practice. practice, practice, practice.

This is something I think a lot of people don’t consider when trading, I feel they think once they have a system they are good to go but I think that implementing these things still requires a lot of practice. For example just because Tiger Woods new how to play golf did not make him the best in the world. Lots and lots of practice made him the best in the world.

This is where I use ForexTester2 as it allows me to practice and hone  my skills a lot more than any demo account ever will. For example the trade I just discussed here happened over an eight hour period, with ForexTester2 I can cover a couple of years of data and thousands of trades in this time,  this equates to much more  experience and price action analysis. Trading is like any other skill to stay in form you need to practice your skills all the time too stay on top of your game.

Trade Well

Perry

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