Trading Pin Bars At Trend Lines

Pin bars are one of the core strategies I teach new traders on this site.

The main way to trade pin bars is at levels of support and resistance found in the market, this is the most well-known method of trading them, but there also other happens to be other ways of trading them which don’t really get talked about too often.

Today we will be looking at one such method which doesn’t tend to get a lot of attention in price action trading circles.

 

Pin Bars At Trend Lines

 

Trend lines are one of the cornerstones of technical analysis, they’ve been in use since the dawn of trading and provide the backbone to many traders identification and analysis of trends in the market.

Now although I don’t use trend lines in my analysis of the trend itself, I do use them when looking for pin bars to trade.

Finding a pin piercing a trend line is a typically rare event in the market, they aren’t the kind of trade you’ll find all over your charts, this is a good thing, things that don’t occur often in the market usually present unique opportunities to make money.

 

 

How To Draw Trend Lines

 

Most traders already know how to draw trend lines, for those of you that don’t, I’ve dedicated this section to teaching you a quick method which will have you drawing trend lines like a pro in no time.

Drawing Trend Lines On Down Moves

 

Trend lines on down movements are always drawn above the candlesticks not the bottom.

And they also require two swing highs in order to be placed.

To draw a trend line you need to select the trend line tool on MT4 then find the first swing high and draw the trend line from 1st swing high to the next swing high found immediately after it.

Aviary Photo_130935727154911081

The trend line I’ve drawn on the image above can only be drawn after two swing highs have been made in the down-move, the line itself must be drawn from the highs of the swing, do not draw the trend line through the highs, this is a common mistake traders tend to make.

If the market returns to the trend line and you see candle wicks going through the line this is fine, do not re-position the trend line.

For a trend line to be considered invalid or broken the market must have managed to close above it with multiple candlesticks.

 

Drawing Trend Lines On Up Moves

 

Trend lines on up movements are always drawn below the candlesticks like in the image below.

Aviary Photo_130938814327554611

In contrast to drawing trend lines on down moves, trend lines on up moves require two swing lows to be made before drawing the line.

If you look at the 4th time the market hit this trend line you’ll see it nearly broke through it, two candles managed to breach the trend line, if you see this it means the trend line is still intact, its only when consecutive candlesticks close below the line does it mean the trend line has become invalidated.

Why Pin bars At Trend Lines Are High Probability Setups

 

Pin bars found at trend lines tend to result on high probability trades for two reasons:

  1. There a rare setup, it’s not everyday you’ll see a pin bar at a trend line.
  2. A pin bar at a trend line shows an important event is taking place which is going to make a lot of traders lose money.

 image of bllish pin bar with up trend line

Looking at this image we can see a trend line drawn from the swing lows of an up move in the market.

In total the market hit this trend line 5 times, the 5th time the market returns it produces a bullish pin bar, which I’ve marked on the image.

Now for the important bit.

Think about the psychology of the traders who sold during the creation of the bullish pin.

They all sold because they believed the market was about to break lower.

They themselves may have been using the same trend-line we’ve drawn above only their method of using them is to identify a change of trend, when they see the market drop blow the trend line they associate that with a changing of trend which causes them to place sell trades.

image of bearish large range candle

The bullish pin would have looked like the bearish candle above to begin with.

This is why trading pin bars at trend lines can lead to high probability trades, the bank trader notices a lot of traders selling on the break of the trend line and knows if he buys up all the sell orders from the traders selling he will push the market higher, making them lose money and him a healthy profit.

When the market begins to move up from the bank traders buying (which creates the wick on the pin), the traders who sold are now being put under intense pressure to close their trades, they don’t want to lose money and will have an amount set in their head as the maximum their willing to lose on the position.

Soon after the market starts moving higher, the traders who sold on the break of the trend line all one by one begin to close their trades as the amount their willing to lose gets reached, the only way they can close their trade is by using a buy order which will result in increased pressure to the upside, essentially making even more traders close their trades.

Examples Of Pin Bars At Trend Lines

 

image of bearish pin bar with trend line

 Here we have small down-move seen on the 15 minute chart of USD/JPY

Just as we do with support and resistance levels, this trend line would have been pre-marked on our chart’s before seeing the bearish pin bar form.

Note:

Some traders might say the pin bar I’ve marked above more closely resembles a doji candle than it does a pin bar I agree, but I’ve always treated doji candles with a long wick at one end the same as pin bars due to the psychology of what they represent in the market.

Personally I see no difference between the two patterns, if a candle has a long wick at one end it means some sort of rejection happened no matter what the candle itself looks like.

Aviary Photo_130940853786284126

Here’s an example of a bullish pin bar found at a trend line.

After seeing two swing lows form we know this is in fact a confirmed trend line, at this point we would be waiting for a pin bar to form, when it does we follow the same process of placing the trade as we would do for trading pin bars at support and resistance.

The entry is at the time period you trade-off  i.e if you trade the 1 hour chart wait until the end of the hour before placing the trade.

The stop-loss goes just above the high of the wick on the pin bar if your trading a bearish pin or it goes below the low if your trading a bullish pin setup.

Lowering risk on the trade occurs when the market makes a lower swing low ( in bearish setups) or a higher swing high in bullish pin bar setups.

Hope you enjoyed today’s article, if you have any questions or wold like any further explanations of the things discussed in this article don’t hesitate to leave them in the comments section below.

 

You May Also Like:

Leave a Reply

Your email address will not be published. Required fields are marked *