The Definite Guide To Trading Pin Bars

If there is one price action pattern almost every trader in the forex market is likely to have knowledge on, it’s the pin bar.

Pin bars are one of the easiest price action setups to identify and trade. They also happen to be a high probability setup which you can use to make money provided you understand how to trade them.

Trading pin bars is the perfect trading strategy for a someone who is new to the forex markets. Pin bars themselves are incredibly easy to spot on your charts once you know what they look like and can be used in conjunction with many other trading strategies such as supply and demand or support and resistance.

Today’s article is going to be an introductory guide for beginning traders who have no prior experience or knowledge trading pin bars. I’ll walk you through what pin bars look like along with their characteristics and towards the end of the article I’ll show you a simple pin bar trading strategy that you can use if you’re a beginning trader.

 

What Does A Pin Bar Look Like ?

 

Pin bars are probably the easiest price action pattern to spot of your charts. The features that make up a pin bar are really obvious to see and it makes locating pin bars simple.

There are only two things you need to look for when trying to identify a pin bar on your charts:

The first is a long wick which is located at one end of the candlestick.

And the second is the body of the candle will be found at the opposite end of the candlestick.

 

image of bearish pin bar

Here’s an example of what a bearish pin bar looks like.

Notice how the body of the candle is found at the bottom of the candlestick and the wick is found at the top. All bearish pin bars you see on your charts will always have these two features present, a long wick at the top and the body at the bottom. Sometimes you’ll see the body not right at the bottom of the candle like you can see in the image, but a little higher up so it leaves a slight wick.

Here we have an image of a bullish pin bar.

Notice how the body is found at the top of the candle as opposed to being found at the bottom like in the bearish pin bar example and the wick is found at the bottom instead of the top. All bullish pin bars are constructed like this, the wick will always be at the bottom and the body will always be at the top.

One thing you can probably notice about the image of the bullish pin bar is how the body of the candle does not close right at the top of the pin bar.

Pin bars come in all different shapes and sizes. The body of the pin will not always close right at the top of the candle for bullish pins or the right at the bottom for bearish pins. Often they will close slightly above or below which will leave a slight wick. When you see a bullish or bearish pin which does not have the body close right at the top or bottom of the candle, it’s still a valid pin bar trade. The only time it’s not, is when the body closes in the middle of the candlestick, a candlestick like this is not a pin bar, it’s an indecision candlestick.

 

 Characteristics Of Pin Bars

 

Like I said a minute ago, pin bars come in various different shapes and sizes, some have really long wicks whilst others will have small bodies.

The characteristics of pin bars such as the length of the wick play an important role in whether the pin will result in a successful trade.

The wick on the pin bar is important because it shows us how many traders got trapped in losing trades when the pin bar was forming. Common price action teaches state the reason why pin bars work is because the wick shows a rejection taking place in the market, therefore the longer the wick the bigger the rejection.

This is incorrect because of how the market works.

If you read my two articles “pin bars do not show a rejection taking place” and “the real reason why pin bar work” you’ll see how the wick doesn’t show a rejection taking place and actually shows how a large number of traders are trapped in losing trades. Despite this the concept still remains the same, “the longer the wick the better the chance the pin bar has of causing a reversal”.

When you’re looking for bullish and bearish pin bars on your charts you want to see the wick stand out from the candlesticks seen previously.

image of bullish pin bar on 1 hour chart of eur/usd

Here we have a bullish pin bar which caused a reversal on the 1 hour chart of EUR/USD.

You can see how the wick clearly stands out from the candlestick seen immediately before it. These are the types of pin bar you want to be looking for when scouting for trading opportunities. Most pins you see will not have their wick stick out from the rest of the candles, these pin bars can still provide you with winning trades if you decide to trade them but more often than not will cause you to lose money so it’s best if you stick to trading the pins which have an obvious wick.

Something which you might have noticed from the image above is how the body of the pin bar is bearish yet i still referred to it as a bullish pin.

The reason it’s considered to be a bullish pin bar even though the body of the candle was bearish, was because all of the features of a bullish pin bar were present. The wick was found at the bottom and the body was found at the top. So long as these two features are present it’s a bullish pin,  the same can said for bearish pin bars too, a bearish pin bar that has a body close bullish is still a bearish pin bar so long as the wick is found at the top of the candle and the body is found at the bottom.

 

How Do You Trade Pin Bars ?

 

So now I have given you a little bit of background as to what pin bars look like along with what characteristics they tend to have, I want to show a simple method you can use to trade pin bars in the market.

This method is aimed squarely at beginning traders who do not have much experience trading the forex market and traders who have little knowledge of price action or pin bars.

One of the most important things to understand about pin bars is they should never be traded in seclusion. What I mean by this is you’ll probably see lots and lots of pin bars all over your charts, now just because lots of pin bars appear does not mean they are all valid for trading. Most of the pins you identify will end up failing to cause a reversal whilst a small few will work out like expected.

image of bullish and bearish pin bars

Looking at the chart above you can see many different bullish and bearish pin bars all over the place. You’ll notice how some of these pins worked out successful whereas others didn’t, the ones I’ve marked with an X all ended up causing a reversal which you could have made a profit on if you  traded them.

Note:

I haven’t marked all the pin bars which would have resulted in you making money in the event of trading them, I’ve simply marked the most obvious ones.

To determine which pin bars should be traded and which should be left, we need to combine our understanding of what pin bars look like with other methods of analysis such as support and resistance.

 

Pin Bars At Support And Resistance Levels

image of pin bars found at levels of support and resistance

Here’s the image we have just looked at only I’ve drawn some support and resistance levels on the chart to show you how the three pin bars which ended up being successful were all found at support and resistance levels.

At the bottom of the image we can see a bullish pin bar which formed at a support level.

Before this pin appeared we would have had the support level pre-marked on our charts and would have been watching the market closely to see if there was any kind of “hint” that the market may be about to move higher upon reaching the level.

This “hint” would come in the form of a bullish pin bar. When we see the bullish pin appear at the support we need to wait for the candle to actually form before placing our trade.

What I mean by this is since we’re seeing this on the 1 hour chart we will need to wait until the end of the hour before placing a trade based on the bullish pin. If we place the trade before the pin bar has closed and the next candle has begun we run the risk of having the pin bar turn into a completely different candlestick which we don’t actually want to be trading.

 

Determining The Trend Direction

 

Determining which way they market is currently moving is of up-most importance to us when it comes to trading pin bars, we don’t want to be trading against the trend because we know the odds of us having a successful pin bar trade are much lower than if we were to trade in the direction of the current trend.

So before we even consider placing a pin bar trade we need to identify what the current trend is in the market. We do this by analyzing what sequence the highs and lows have appeared in.

image of bearish pin bar in downtrend

Here we can see an example of a bearish pin bar which formed during a downtrend.

Before the pin bar appeared we saw the market produce consecutive lower swing lows (marked with an X on the chart) and lower swing highs which I’ve marked with a tick. This sequence of lower lows followed by lower highs tells us the market is currently in a downtrend.

This means we only want to be placing sell trades. If you look closely you’ll notice there is a bearish pin bar which formed during the time the market was falling.

The bearish pin would have probably resulted in you making money had you decided to trade it. Now if you take a look at the lower swing lows I’ve marked you’ll notice there are two bullish pin bars.

Both of these bullish pins fail to cause the market to reverse for a decent length of time, trading these would likely to have resulted in you losing money which is why I always say it’s better and more profitable if you trade in the direction of the current trend.

image of bullish pin bar in uptrend

Here’s an example of a bullish pin bar which formed during an up-trend.

The ticks mark the swing highs and the X’s mark the swing lows. Seeing higher highs followed by higher lows tells us the market is currently in an up-trend which means we only want to be looking to place trades when we see bullish pin bars.

Again you’ll notice two bullish pin bars on the image, the one which I’ve marked and another which has an X underneath it. Placing a buy trade upon seeing these pins would have resulted in you making a decent amount of profit even if you only held them for a short space of time.

Hopefully these two examples have shown you how important it is to trade in the direction of the current trend when your trading pin bars. It is possible to trade pins which form against the trend but I personally wouldn’t recommend it to beginning traders as it requires a fair bit of experience trading the markets.

 

Make Sure The Body Of The Pin Bar Closes Into The Body Of The Previous Candle

 

Another thing which you need to keep in mind when you’re looking to take a pin bar trade is if the body of the pin bar closes into the body of the previous candle.

image of bearish pin bar on 1 hour chart of usd/jpy

Look at how the body of the bearish pin bar above closes into the body of the bullish candle seen before it. Pin bars which have their body close into the body of the previous candle have a higher probability of working out successfully than pin bars which have their body fail to close into the body of the previous candle.

image of bullish pin bar which does not close into the body of the previous candlestick

Here’s an example of a bearish pin bar which had its body fail to close into the body of the previous candlestick.

You can see a small drop took place right after the bearish pin formed but then the price started moving up again and it wasn’t long before the high of the bearish pin bar was broken.

The reason why pin bars which have their body close into the body of the previous candle tend to work out more successfully than pins which don’t manage to close into the body of the prior candle is because of the buying ( or selling in the case of the image above ) that takes place during the time the pin bar is forming.

A pin bar is essentially created by the banks making one of three different decisions in the market:

Placing trades – closing trades – taking profits off trades

When the banks make one of the decisions above it puts orders into the market which causes the price to fall or rise, this is what creates the wick we see on the pin bars. The traders who placed trades in the direction they thought the market was going to move in during the time the pin bar was forming watch as their trades go from being at a profit to being at a loss, upon seeing this they close their trades because they want to lose as little money as possible.

Closing their trade results in buy or sell orders ( depending on the trade ) coming into the market which pushes the price in the opposite direction to which it was moving in when the pin was forming. This causes even more traders to start closing their trades and eventually you’ll see the pin bar close either into the body of the previous candle or close somewhere outside it. If it closes into the body it means a bigger amount of traders have closed their trades at a loss and its likely for the pin bar to cause the market to reverse as even more traders will be closing their trades.

If it doesn’t close into the body, it’s a sign that a far smaller amount of traders have been closing their trades which essentially means there’s a lower  chance of a reversal taking place due to the fact not as many buy or sell orders are coming into the market.

Sometimes you’ll see that this isn’t the case and it’s likely for you to notice quite a few pin bars which don’t have their body close into the body of the previous candle working out successfully.

The point is even though a lot of them work out successfully we only want to be placing the highest probability pin bar trades possible, that means we have to be selective about choosing which pins to trade.

 

Entering The Trade

 

Okay so far we’ve learned that before you place a pin bar trade you must make sure the pin is found at a support or resistance level and you must also be sure that you are trading in the direction of the current trend by looking at the sequence of highs and lows.

The last thing we need to do is actually enter the trade.

A lot of pin bar trading guides you can find on the internet suggest you enter pin bar trades using a pending order placed at the low or high of the pin  once the candle has closed. I think this is an inferior method to using a market order to enter pin bar trades due to the fact the market conditions can easily change before the high or low is broken and there typically tends to be many occasions where the high or low will not be broken on the next couple of candles and your trade will not be executed.

Due to this I advise you to always enter your pin bar trades using a market order.

By using a market order your guaranteed to get entered into a pin bar trade as soon as it begins and will not have to worry about whether the high or low of the pin is broken by the next candle.

Stop Loss Position For Bullish And Bearish Pin Bars

 

Of course before we actually execute our trade we need to place a stop-loss into the market so we can limit the amount of money we’ll lose in the event of something unexpected happening.

Knowing where to put your stop-loss when trading bullish and bearish pin bars is incredibly easy as I’ll now show you.

Bullish Pin Bar Stop Location

image of stop loss postion for bullish pin bar setups

If you observe a bullish pin bar forming and decide your going to place a trade, your stop-loss needs to be placed below the low of the bullish pin bar wick. I wouldn’t recommend you put it at the exact low because there will be many instances where the next candle will take out the low before moving higher, so to be on the safe side I think it’s best if you place the stop 10 pips below the low of the bullish pin bar wick.

Bearish Pin Bar Stop Location

When your trading a bearish pin bar, you’ll need to put the stop-loss 10 pips above the high of the candle.

image of stop loss postions for bearish pin bar setups

 

 

 

 

 

 

 

 

 

 

 

 

Here’s an example. Upon seeing this bearish pin form you would have placed a sell trade and put your stop-loss 10 pips above the high of the candle like I’ve shown in the image.

 

What You Need To Do Once Your In A Pin Bar Trade

 

Once you have got your pin bar trade placed with your stop-loss positioned above the high or below the low, there is one final thing you must do…..

You need to give the trade a chance of working out.

Most people have a lot of trouble doing this because they get scared of losing money when the price moves against their position.

For example, let’s say you’ve placed a sell trade upon seeing a bearish pin bar. Three candles after your trade has been placed the price starts to move up again and comes into close proximity to the point where you have placed your stop-loss. You decide to close the trade because you feel like the price is going to continue moving higher and your stop-loss is about to be hit.

Once you’ve closed the trade you breathe a sigh of relief because you feel like you’ve made a good decision which has saved you money that you probably would have lost had you kept the trade open.

You then notice the price start to move back in the direction to which you had your trade placed. Eventually the price falls to a point where you realize you would have made a significant amount of money had you left the trade open instead of closing it because you though the price was going to move higher.

Situations like this are all to common for people in the forex market, needless to say it’s incredibly frustrating to be in a successful trade only to end up closing it because you thought you were going to lose money, in my opinion it’s almost as bad as actually having your stop-loss hit and losing money.

The method you should use to combat this issue, is to close the MT4 window once you have placed your trade and then close the brokers trading platform window and go and do something else for the next few minutes/hours ( depending on which time-frame you trade-off )

If you can’t see what’s going on in the market then you’ll be unable to make a judgement as to what’s going to happen next which will stop you from closing the trade prematurely and give your position a chance of working out successfully.

After a few hours or minutes have passed you can come back to your trade and see if you have made or lost money.

If the market has ended up moving in the direction you anticipated, the next thing you need to do is move your stop-loss to reduce how much money you have at risk on the trade.

 

When You Should Move The Stop Loss For A Bullish Pin Bar Setup

 

Moving the stop-loss allows us to decrease how much money we have at risk on the trade once our trade has been placed into the market.

Decreasing risk is of course hugely important when it comes to trading, our aim as traders is to make as much money as possible while losing as a little as possible, the only way to do this is by reducing the risk on our trades at every opportunity we get.

In a situation where you have placed a buy trade based on seeing a bullish pin bar, the stop-loss should be moved from 10 pips below the low of the pin to the price at which your buy trade was entered at when the market makes a swing high which is higher than the most recent swing high in the market.

image of when to move your stop loss on bullish pin bars

Here’s an example of what I mean.

You’ve placed a buy trade based on the bullish pin bar seen above with your stop below the low of the wick, once the market moves up and makes a new swing high, you move the stop from below the low of the bullish pin bar to the price at which your buy trade was placed at.

 

When You Should Move The Stop Loss For A Bearish Pin Bar Setup

In a situation where you’ve taken a sell trades because of seeing a bearish pin bar, the stop-loss needs to be moved to the price where the trade was entered as soon as the market makes a swing low which is lower than the most recent swing low made in the market.

image of when to move your stop loss bearish pin bars

Here we can see a bearish pin bar that formed when the market was falling. Soon after the bearish pin forms a big drop takes place which causes the market to make a new swing low. Upon seeing this new low being made you would move the stop-loss down from the high of the bearish pin to the price where your sell was entered at.

Summary

I hope this guide has given you a good introduction on how to trade pin bars.

If you follow all the rules provided, you should find that trading pin bars can be a great strategy, especially if your just starting out in the forex market. The more you trade them the better you will become at identifying the times and conditions they work best in, eventually you’ll reach a level of understanding where you can start to consider learning new trading strategies such as trading engulfing candles.

Thank you for reading, if you have any questions you would like answered please leave them in the comments section below.

Resources

The links below will take you all the other articles I have written on pin bars found on this site.

Pin Bars – Secrets Of Why They Work

Trading Pin Bars At Trend Lines

Why You Shouldn’t Trade Pin Bars As Reversal Signals

Pin Bars Do Not Show A Rejection Taking Place In The Market

Why Dragonfly And Gravestone Doji Candlesticks Are The Same As Pin Bars 

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4 comments

  1. Take a look at the EURUSD chart that you show right after the section entitled “Determining The Trend Direction”.

    My question is about the candle that you identify as a “Bearish Pin Bar”.

    To me, that bar looks more like an Indecision candle, as opposed to a Bearish Pin. It’s got two long wicks, and a very small body.

    How is that a bearish indication to you?

    Anyway, thanks for teaching. Very stimulating, as usual.

    • ForexMentorOnline
      Author

      I agree, it is definitely more of a indecision candle than it is a pin bar, will change it now. By the way I received your email the other day about getting the updated version of my Zero Sum Fun book, I’ve been trying to email you back ever since but every time I do it comes back as undelivered ( not sure why this is ) If you can send me another email using a different address I should be able to send you the updated version along with a new book which I wrote a couple of weeks ago.

  2. Will

    Hello I have emailed you I was wondering are your books pdf file or hard copy i’m new to forex and trying to learn all that i can.

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