Understanding The Pin Bar Candlestick Pattern

In today’s article, we’re going to be taking a look one of the most common candlestick patterns you’ll see form in the forex market. Yes, of course I’m talking about pin bars (or hammer candlesticks as they’re often called). The pin bar candlestick reversal pattern can be found forming all over your charts. They appear frequently, and are one of the most popular price action patterns traders watch out 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 teach what they are, why they form in the market and how to identify them on your charts. 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.

 

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 (or hammer candlestick as it’s often called in older trading literature) 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 the pin bars which have been created by the banks taking profits 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 what causes pin bars to form in the market 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 you to have a deep knowledge of high level 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.

 

How To Identify A Pin Bar

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 price action 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.

Summary

Well I hope this guide has given you decent understanding of how to identify 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 

5 Tips That Will Change How You Trade Pin Bars

The Definite Guide To Trading Pin Bar

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