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.
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.