The Definite Guide To Trading Pin Bars

In today’s article, we’re going to be taking a look one of the most common price action patterns you’ll see form in the forex market. Yes, of course I’m talking about pin bars. Pin bars are a type of reversal candlestick that can be found forming all over your charts, they appear frequently and are one of the most popular price action patterns traders watch for in the market, mainly due to how simple they are to identify and trade.

This article is going to be a general overview of all things pin bars. I’m going to show you what they look like, how to identify them on your charts and how to trade them, with a simple little pin bar trading strategy I used to use when I first began trading the forex market. At the end of the article I’ve put some links to other pin bar related articles on my site, so if you already have a basic knowledge of trading pin bars I’d suggest skipping to the end to look at some of my other articles, as they will contain information about pin bars you’ve probably not heard before.

 

What Are Pin Bars ?

I think the best way to start this article is by giving you a little bit of background as to what pin bars are, because it’s important to understand the basics before we move on to some of the more advanced stuff as it will only make things more difficult.

To put it simply, a pin bar is price action pattern which is supposed to be a signal a reversal may be about to take place in the market. The reason I say supposed, is because not all pin bars are sign the market might be about to reverse. Some are, but the vast majority have actually formed as a result of the bank traders taking profits off their trades, not because they were placing trades to make the market reverse, which is what most price action books/websites assume is the reason behind every pin bar forming in the market. Trading these pin bars often results in losing trades, due to the fact once the banks have finished taking profits off their trades they’ll want the market to continue moving in the direction to which their trade have been placed, which means the market will move back in the direction it was moving in before the pin bar formed in the market.

Understanding why and how pin bars form is necessary to becoming successful trading pins, but it’s not something I’m going to show you how to do in this article as it requires a deep knowledge of high levels market mechanics, like how buy and sell orders enter the market and how these orders are used by the bank traders to place trades and take profits. It would take me a huge amount of time to explain these concepts to a beginning trader (which is kind of the trader this article is primarily aimed at), so if you want to learn more about how and why pin bars form in the market, I’d suggest taking a look at some of the other articles I have on my site about pin bars and how the bank traders trade the forex market, as these will increase your understanding to a point where you should be able to identify which pin bars have formed from the banks taking profits off their trades and which have formed from them placing trades to make the market reverse.

If you don’t have the time to learn how to do this from the many articles I have available on the site, you can just purchase my Pin Bars Uncovered book from the Cool Stuff page and get a straight forward guide on the different types of pin bar that form in the market and step by step instructions on how to trade each type of pin. It’s not necessary, but it will greatly reduce the amount of time it takes you to understand the things which will make you more successful trading pin bars, so if you’re interested in that check out the Cool Stuff page.

 

What Does A Pin Bar Look Like ?

With that out the way the next thing to do is to show you what pin bars look like, so you can begin identifying them on your charts and gaining some much needed experience in understanding how they’re constructed.

The great thing about pin bars, and the reason I believe there so popular with traders, is they’re really easy to spot on your charts. With other price action patterns like the head and shoulders pattern or the flag pattern, the patterns themselves often only become obvious once someone has pointed them out to you. With the pin bar, you can easily spot when they have formed on your own and there can be no confusion as whether the candle your looking at is a pin bar or a different type of candlestick.

Lets now take a look at what pin bars are supposed to look like when they form on your charts.

 

image of bearish pin bar 1

The image above is an example of a bearish pin bar.

Notice how the body of the candle (the red bit for those who don’t know) is found at the bottom of the candlestick and the long black wick is found at the top ?

All bearish pin bars you’ll see form in the market will follow this basic structure. They’ll all have their body at the bottom candlestick and their wick at the top. Sometimes the body of the candle will not be found right at the bottom, like you see in the image above,  but it will always be found in the bottom half of the candlestick.

image of bearish pin bar 2

Here’s another bearish pin bar.

With this pin, you can see the body of the candle is not found right at the bottom like we saw in the previous image but is instead located a little bit higher. Also the body of the pin bar itself is a bit smaller than what we saw on the bearish pin bar in previous image. The fact it leaves a small wick, and is smaller overall in terms of it’s size, doesn’t mean this bearish pin bar should be viewed or traded differently to any other bearish pin bars you see form in the market. So long as the body of the pin bar is found at the bottom half of the candlestick and the majority of the wick is found at the top, the candle is considered to be a bearish pin bar.

image of bullish pin barHere we have an image of a bullish pin bar.

As you can see, bullish pin bars look very similar to bearish pin bars, the only real difference between the two is the body of the bullish pin bar is found at the top of the candle instead of the bottom, and most of the wick is found at the bottom instead of the top. Similar to the previous image the body of this bullish pin bar does not manage to close right at the top of the candle, but like I said before this doesn’t make a difference, it’s still a bullish pin bar and should be treated the same as all other bullish pin bars you see form in the market.

 

How To Make Sure It’s A Pin Bar

Simply knowing the body of the candlestick needs to close towards the bottom or top of the candle for it be a bullish or bearish pin bar is a bit of vague advice, especially for newer traders who have little experience identifying pin bars in the market. To make it easier for the inexperienced traders to identify pin bars, I’ve come up with a little method you can use to confirm the candlestick you’re planning to trade is definitely a pin bar, and not another candlestick like an indecision candle.

image of bearish pin bar 3Here’s an image I drew of a bullish pin bar.

You can see I’ve marked the high of the pin bar and the low of the pin bar with arrows.

If you were unsure weather the body of this candlestick was close enough to the bottom of the candle for it to be a bullish pin bar, the first thing you’d need to do is find out what the range of whole candlestick is. In order to find out the range, all you do is measure how far away from the low the high of the candlestick is. For the sake of the example lets just say the range of the candle in the image above is 200 pips.

Note:

To actually measure how far away the low of the candle is from the high, you need to select the crosshair tool in MT4 and click and drag the crosshair up from the low of the candle to the high. The distance will then be displayed as a three or four digit number next to the crosshair.

So now you know what the range of the candlestick is, the next thing to do is find out what a quarter of the range is. A quarter is found by halving the size of the range twice. In this example the range of the candle is 200 pips , so a quarter of that would be 50 pips. Once you’ve found what a quarter of the range is you then need to measure how far into the candle that is from the low or the high, as that will be our guideline for finding out if the candle we’re viewing is actually pin bar.

image of bearish pin bar with high and low marked Here’s an example to show you what I mean.

In the image above you can see I’ve marked two red lines. These two red lines show how far away 50 pips from the low and 50 pips from the high of the candle is.

The bottom red line is 50 pips away from the low of the candle and the top red line is 50 pips away from the high. If the body of this candlestick was found within the area between the low and the point where I’ve marked 50 pips away from the low, the candle would be confirmed as a being a bearish pin bar. If it was found in between the high and 50 pips away from the high, it would be a bullish pin bar. If you had a situation where the body of the candle was not found in the area in between the low or high, and was instead found on the point where I’ve marked 50 pips away from the low / away from the high, so long as the majority of the candlestick body is found to be in the area in between the low and the point marked as 50 pips away from the low the candlestick is a bearish pin bar. Conversely, if the majority of the candle body is over the red line marked as 50 pips away from the high but still in the area between the high and the point marked as 50 pips away the candle is still a bullish pin bar.

image of indescion candlestick

Now if the candlestick body is found to be in the space between the point where I’ve marked 50 pips from the high and the point where I’ve marked 50 pips from the low like you see in the image above, the candlestick is considered to be an indecision candle and should not be traded.

 

How To Trade Pin Bars At Support And Resistance Levels

So now that you have some idea of what pin bars look like along with a little method you can use to help your identify them on your charts, the next thing I want to do is show you a simple pin bar trading system you can use to make some money from the market.

I want to make it clear that this trading strategy is aimed squarely at beginning traders who do not have much experience trading the forex market. Whilst you can make money using the following strategy, it is meant more as a way for you to gain some valuable experience trading and interacting with the market.

The strategy I’m going to show is based on looking for pin bars to form at certain points in the market. These points are called support and resistance levels. You may have heard about support and resistance levels before when reading books or articles on forex trading. They are a very well known concept and most price action traders will incorporate them in some way into their trading method. I’ve already written a lengthy article on support and resistance levels so I suggest you go and read that first before continuing on, as it will teach how to draw support and resistance levels on your charts which is a skill you’re going to need if you are to implement the following trading strategy.

Here’s a link to the support and resistance article.

“Understanding Support And Resistance Levels”

 

Step 1: Determine The Direction Of The Trend

The first step to trading pin bars at levels of support and resistance, is to determine which direction the market is currently trending in on the time-frame you use to place all of your trades.

To determine which direction the market is currently trending in you need to look to see if the most recent swing low that’s formed in the market is lower than the previous swing low or if the most recent swing high is higher than the previous swing high. If the low is lower it means the trend is currently down and if the high is higher it means the trend is up.

image of swing low followed by lower swing lowHere’s an image of the market making a swing low which was lower than the previous swing low that had formed in the market.

When this lower swing low is made you would begin looking for entries into short trades because the trend is now considered to be down. If a bearish pin bar formed at a level of resistance after this lower swing low had been made, you would enter a sell trade because the bearish pin bar would be a signal the market is likely to going to continue moving lower.

image of swing high followed by higher swing highThis image shows the market making a swing high higher than the previous swing high that had formed in the market.

When you see the swing high broken by a higher swing high, you’d start looking for opportunities to go long as you know the market is in an up-trend. If a bullish pin bar was to now form at a level of support you had marked on your charts, it would be a good idea to place a buy trade, because the bullish pin bar would be a sign the up-trend is going to continue.

One thing which a lot of pin bar traders try to do when trading pin bars, is trade the pins which form counter to the direction the market is currently trending in. In other words, if the trader had determined the trend to be down, instead of trading the bearish pin bars which signaled a continuation of the downtrend, the traders would trade the bullish pin bars and attempt to predict where the whole downtrend was going to come to an end.

The traders who trade like this usually end up losing money on lots of their trades because they don’t understand the reasons why pin bar form in the market. All pin bars form as a result of the bank traders either placing trades to make the market reverse or from taking profits off trades which they’ve already got placed. When the market is in a downtrend, most of the bullish pin bars that form have formed because the bank traders are taking profits off sell trades placed earlier on in the downtrend. Because the bullish pin bars have formed as a result of profit taking and not trade placing, it means they have a small chance of causing a reversal to take place in the market, due to the fact the banks still want the market to continue falling so they can make more money of the sell trades they’ve already got placed.

The same thing happens with the bearish pin bars that form during up-trends. When the market is in an up-trend the majority of bearish pin bars that form have formed because the bank traders are taking profits off the buy trades they’ve got placed. The bearish pin bars are unlikely to cause the market to reverse, because the bank traders still want the market to continue trending higher.

 

Step 2: Identify The Pin Bar And Enter The Trade

After you’ve managed to determine which direction the market is trending in, the next task is for you to identify a pin bar that’s formed in the direction of the trend and then enter a trade.

Identifying a pin bar is simple. You just use the examples of bullish and bearish pin bars I gave you at the beginning of the article. If the candlestick on your charts looks similar to these then it’s probably a pin bar. If you’re not sure just use the little method I showed you, where you measure the size of the pin bar and see how far away the body of the pin is located from the low or high of the candle. If you find it to be more in the middle of the candle than at the top or the bottom, then it’s probably not a pin bar and is instead likely to be an indecision candle.

Once you’ve identified a pin bar has formed in the market the next thing to do is enter your trade.

All pin bar trades must be entered using market orders. A market order is where your trade will be placed as soon as you click the “Place Trade” or “Execute Order” button on your brokers trading platform. A lot trading guides I’ve seen teach people to enter pin bar trades using pending orders placed either at the low or high of the pin bar once the pin has formed in the market. In my opinion this is an inferior method of entry due to the fact your trade is only going to be placed if the market manages to break through the high or low pin. There are lots of times when the market will not break through the high or low of the pin before reversing. In situations like this you will have to sit and watch as a trade you could have been had you used a market order goes on to be a profitable trade without you, all because you used a pending order to enter your trade.

You will never have this problem when you use market orders because your trade will be placed as soon as the pin bar has formed, regardless of whether the market ends up breaking through the high or low of the pin bar.

 

Step 3: Place Your Stop Loss

Before you actually enter your trade there is one final thing you need to do…………………

………You need to make sure you have a stop loss placed with your trade.

If you don’t have a stop loss placed with your trade, the potential amount of money you can lose on the trade is theoretically unlimited. (Although it must be said that in most cases the trading broker will close your trade automatically when you have lost all of the money in your trading account).

Making sure you have a stop loss placed with every trade is easy, if you’re a beginning trader and don’t know how to place stops, I recommend that you check out this small article I made about stop losses last year. In the article I’ll teach you everything you need to know about stop losses, like why it’s so important to have a stop loss placed with each trade you take, and a real world example of what can happen if you decide to place a trade without a stop.

If you already know how to place stops losses, the only thing you need to learn is the location of where you put your stop when placing a pin bar trade, which is what I’m going to show you now.

 

Stop Loss Location For Bullish Pin Bars

When trading bullish pin bars you always need to put your stop loss a few pips below the low of the pin.

image of stop loss postion for bullish pin bar setups

In the image above you can see I’ve marked a bullish pin bar with an X. If you were planning to place a buy trade upon seeing this bullish pin bar form, you’re stop loss would need to be placed somewhere around the point where I’ve marked the black line, not right below the low of pin bar, but a small distance away from it.

 

Stop Loss Location For Bearish Pin Bars

With bearish pin bars your stop loss always needs to be placed just above the high of the pin.

image of stop loss postion for bearish pin bar setups

Similar to the last image, the black line I’ve marked on the image above shows roughly the place where you want to put your stop loss when trading any bearish pin bars you see form in the market.

You can place your stop loss right below the of the pin or right above the high of the pin if you want, but I personally wouldn’t recommend it, based on the fact that a lot of the time the market will end up spiking through the high or low of the pin bar before reversing. If you have your stop placed right at the high or low when this occurs, you will be stopped out of your trade and will lose money.

 

Quick Tip: Make Sure The Body Of The Pin Bar Closes Into The Body Of The Previous Candlestick

Something which I suggest you do if you’re new to trading pin bars, is only trade the pins which have their body close into the body of the previous candlestick.

image of bearish pin bar on 1 hour chart of usd/jpyHere’s an example of a 4 hour bearish pin bar which had it’s body close into the body of the bullish candlestick that formed the hour before.

You can clearly see the entire body of the bearish pin bar is contained completely within the body of the bullish large range candlestick which formed the previous hour.

image of bullish pin bar which does not close into the body of the previous candlestickHere’s an example of a bearish pin bar which didn’t have its body close into the body of the previous candlestick.

You can see the body of this pin bar closes into the wick of the previous candle, not the body like we saw in the previous image.

The pin bars which have their body close into the body of the previous candlestick have a slightly better chance of working out successfully than the pin bars which have their body close into the wick of the previous candlestick. The reason why is because when the pin bar body has closed into the body of the previous candle, it’s a sign the momentum in the market has shifted and the price is about to move in the direction the pin bar is suggesting. The momentum has shifted because the market has broken through the source of the up-move or down-move that caused the pin bar to form in the first place.

image of bearish pin bar on 1hour chart of usd/jpyHere’s an image of a bearish pin bar which formed on the 1 hour chart of USD/JPY.

We’re going to take a look at how this pin bar was constructed on the 5 minute chart, so you can see where the up-move which caused the pin bar to form originated from and the point where the market broke it.

image of bearish pin bar on 5 minute chart of usd/jpyHere’s what the bearish pin bar looks like on the 5 minute chart.

The blue vertical line I’ve marked designates the point where the formation of the pin bar begins and the red vertical line marks the point where it ends. The area I’ve shaded in orange is the up-move which causes the pin bar to form and the up arrow shows the point where it originated from. You can see by the time the formation of the pin bar has come to an end ( marked with the red line ) the market has dropped and broken through the point where the up-move which caused the pin bar to form started from.

Because it has broken through this point, it means whatever buy trades the bank traders placed to cause the up-move to occur in the first place have now been closed, which suggests we are going to see further down movement take place in the market.

Of course not all pin bars which have their bodies close into the body of the previous candle manage to break through the point where the up-move or down-move originated from. The majority of them will but a few of them won’t, which is why it’s always a good idea to check how the pin bar you plan on trading has formed on the 5 minute chart before you trade it. If you see that the market has broken the low of the up-move (or high of the down-move if you were trading a bearish pin bar) you know it’s a good idea to take the trade because the chances of the market reversing are a little bit higher.

Most of the pin bars which don’t have their body close into the body of the previous candlestick will not break through the point where the up-move or down-move which created the pin bar originated from. Again, some will but the vast majority won’t, so it’s best to just stay way from trading these pin bars until you have more experience in the market.

 

What To Do Once You’re In The Trade

After you’ve got your pin bar trade placed, it’s a good idea to go and find something else to do for the next couple of hours, because one of the biggest problems new and old traders have when trading the market is closing a trade prematurely before it’s had a chance of being successful.

The main reason traders end up closing their trades prematurely, is because of what they do immediately after they’ve got their trade placed. Most traders after getting a trade placed will watch the unfolding price action to see if their trade starts going into a profit or at a loss. What often happens is there will be some kind of movement in the opposite direction to which the trader has got his trade placed and he will suddenly find himself at a loss on his trade. Keep in mind the stop loss on the traders trade has still not been hit, so technically he hasn’t actually lost any money on the trade yet, but he will if the market continues to move against him.

As the market moves closer and closer towards the traders stop loss, the trader decides to close his trade so as to not let his loss get any bigger and potentially lose any more money on the trade.

When the trade has been closed the trader breathes a sign of relief and believes closing the trade was the right decision to make.

It will be at this point where the market starts to move back in the direction to which the trader originally had his trade placed. The trader helplessly watches as the market moves further and further in the direction he had initially predicted without him, all because he closed his trade without giving it a chance to be successful.

Situations like this are massively frustrating and are caused solely by the trader sitting and watching the price action that forms after his trade has been placed.

Although this is an issue which can never fully be rectified, due to the fact at some point you are going to have to look at your trade and it might be at a loss even two or three hours after after being placed, by at least leaving it alone for a couple of hours you’re giving yourself a chance to calm down and re-asses your thoughts on the market. When beginning traders place trades they tend to feel a rush of excitement similar to what gamblers experience when they make bets. This rush causes the trader to become emotionally involved with their position, which heightens the risk that they may make some kind of snap decision whilst monitoring their trade.

By finding something else to do after getting your trade placed, you negate the risk of making a snap decision which you’ll later end up regretting, because you won’t be there monitoring your trades progress. You’ll still experience the rush of placing a trade, but you won’t be there to act on it so it’s effect on your trade will be negligible.

If you find that your trade is in a profit after a couple of hours of doing something else, the next thing you need to do is decrease the risk on your trade so that if the market moves against your position, you won’t end up losing any money.

Decreasing the risk is done by moving your stop loss from the point where you placed it when you got your trade placed (either the high or low of the pin depending on the pin bar) to the price at which your trade was placed. As an example lets say the price your pin bar trade was placed at was 125.100 and the price your stop loss was placed at was 125.000. In order to decrease the risk on your trade to the point where it’s not possible for you to any lose money, you’d have to move the stop loss from 125.000 to 125.100. If the market fell back to 125.100 after you had moved the stop loss, it would hit your stop and your trade would be closed without you losing any money.

Although you can decrease the risk on your pin bar trade at any time, it’s best to do it when you have some kind of confirmation the market is going to continue moving in the direction you’ve got your trade placed, because if you do it before, there’s a chance the market could move against your trade and take you out just before moving in the direction you anticipated.

Of course we don’t want this to happen, so the best way to avoid it is to only move your stop loss once you see the market has made a new higher high if you’ve placed a buy trade, or a new lower low if you’ve placed a sell trade.

image of bullish pin bar forming after swing high was made Here’s an image of bullish pin bar that formed on the 1 hour chart of USD/JPY.

If you had placed a buy trade upon seeing this bullish pin bar form (you wouldn’t because it’s not a great pin bar) your stop loss would be moved once you saw the market make a high higher than the one I’ve marked in the image.

image of the market making a higher high after a bullish pin bar had formedAs you can see, a few hours after the bullish pin bar had formed, the market moved up and made a new high which was higher than the previous high that had been made in the market. When you see the market make this new high, you would move your stop loss from just below the pin bar low to the price at which your pin bar trade was executed at. In this example your pin bar trade would’ve been executed around the 124.570 level, so when you see the market make the new higher high, you’d move your stop to this price to decrease the risk on your trade.

image of bearish pin bar forming after swing lowHere’s an example of a bearish pin bar which formed on the 1 hour chart of EUR/USD.

If you were trading this pin, you’d move your stop loss from the high of the pin bar to the price at which your trade was placed, after seeing the market make a low lower than the most recent low that has formed in the market.

image of bearish pin bar after the market has made a new lower lowYou can see three hours after the bearish pin bar formed, the market dropped and made a new low which was lower than the previous low. At this point your stop loss would be moved from the high of the bearish pin bar to the price your sell trade was placed at, which in this example happens to be around the 1.10650 level.

When you’ve decreased the risk on your pin bar trade to the point where you can no longer lose any money, the final thing you need to do is close the trade and bank the profits you’ve made. I’m not going to go into detail about when or where you should begin taking profits off your trades, but what I will say is that if you place a trade and find yourself in a really large profit a short time later, it’s best to close the trade and bank your profits or at least take a large amount of profit off the trade by moving the stop loss past the point where you entered your pin bar trade. (Check my article on stop losses to learn how to do this)

 

Summary

Well I hope this guide has given you decent understanding of how to identify and trade the pin bars you see form in the market. Like I said at the beginning, this article was meant primarily for the new traders who are just getting started in the forex market and have little to no knowledge of what pin bars are or how to trade them. If you really want to get good at trading pin bars I encourage you to read some the other pin bar articles I have on my site. I’ve left a list of the all articles below so feel free to check them out whenever you get chance.

Thanks for reading, if you have any questions please leave them in the comments section below.

Resources

The links below will take you all the other articles I’ve 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.