Pin Bar Trading Strategy

The Pin Bar Trading Strategy might be one of the most overlooked strategy because it’s seems too simple to be effective for many traders. Many traders think that price action is all technical analysis, however, that’s only true to some extend because price action is a more psychological analysis because the price action candles is telling us a story, what the market is thinking and what it could be getting ready to do in the near future. The first thing any professional trader should want to do whether it’s a Pin Bar or any other price pattern is to understand why you’re trading this pattern, what’s the story behind it?

Pin Bar Trading Strategy is the core of Price Action Trading

The Pin Bar Trading Strategy is really the bread and butter setup for any price action trader as it’s very easy to be spotted on a chart (see chart below) with clear characteristics and it can be fairly profitable if it’s in the right market context. Going forward you’re going to learn more about the psychology behind the Pin Bar, how to identify a Pin Bar and how to properly trade the Pin Bar.

The Psychology behind the Pin Bar

Candlesticks can form for a lot of different reasons, but in the case of a Pin Bar, which is a reversal pattern, generally there are two big reasons why they form which in an uptrend the cause can be either buyers getting exhausted or institutional selling pressure while in a down trend the cause can be either either sellers getting exhausted or institutional buying stepping in the market. There is a second dynamic to Pin Bars, generally the price reversal is very aggressive and we should see a quick and sharp reversal.

Effective Trading with Pin Bars

Just because you found a Pin Bar it doesn’t mean you should trade it, because it needs to be in the right market context and it needs to be in the right position. The first think you have to do is to look at the trend prior to the Pin Bar as when we make trades we want to make sure we’re trading with the trend. The second thing we have to look after major support and resistance levels and the third thing we look after the break of that support and resistance level and then the pullback. For the Pin Bar to be valid you definitely want to have the right market structure, because it’s going to give you the highest chance of success.

The characteristics of a Pin Bar:

·         -The size of the Pin Bar: you need a big, bold candlestick that sticks out on a chart;

·         -The size of the PB needs to be at least equal or larger than the previous bars;

·         -The wick need to protrude beyond the previous candlesticks and beyond any major support and resistance;

·         -The body size it can’t be any more than a third of the total candlestick size;

-The higher the quality of a PB the more assurance of success you can have and that will help you determine how you’re going to plan your trades. The entry and exit rules are quite simple you can either enter at the break of the Pin Bar, once the high/low are broken or you can either use the left eye, which is represented by the candle prior to the PB. Stop Loss is usually placed few pips above/below the wick.

To be a successful trader you don’t need to use a lot of indicators or a special system, all you need to do is look at what the price is doing as price is telling you everything you need to know and you can use that in your favor to make successful trades.