The Pin Bar forex trading method

Introduction

The formation of a pin bar is actually a trend reversal featuring three bars. The term "Pin Bar" is an abbreviation of the term "Pinocchio Bar". Let's see how a pin bar is formed and how we can profit from it in the forex market.

What is a Pin Bar?

To be precise, a pin bar is the middle bar in a three-bar formation which can be found in bar charts or candlestick charts. In general, traders tend to prefer the candlestick chart version, which is considered to be visually superior for observing price action, however, we will initially discuss the formation of pin bars on a standard bar chart.

Characteristics of a Pin Bar formation

The opening and closing of a pin bar are very close and near one end of the bar. The wick of the pin bar sticks out far beyond both bars 1 and 3. The longer the wick is, the better the quality of the formation.

Examples of Pin Bar formations

Here is a daily chart of USD/JPY currency pair, we see many pin bar formations that work very well.

Here is a daily chart of the USD/JPY currency pair. We see an ideal pin bar formation which lead to a significant movement and a trend reversal.

Here is an example of a trending market where many profitable pin bar configurations formed. The following GBP/JPY daily chart shows that pin bars that are taken along with the dominant trend can be very accurate.

How to trade a Pin Bar formation

To trade a pin bar effectively, you must first make sure that it is well defined (see the above characteristics).

Then, try to only trade the pin bars that are in agreement with another signal. In general, pin bars that are traded in agreement with a dominant trend are the most accurate. Nevertheless, there are many profitable pin bars that occur within markets that are in a narrow range or at major trend reversal levels. Also, try to combine the pin bar model with support and resistance levels, trend lines, Fibonacci retracement levels or moving averages .

A pin bar formation is a trend reversal setup, so for a bearish bin bar formation we will sell once the pin bar's low has been broken through and we will put a stop loss 1 pip above the pin bar's wick. On a bullish pin bar formation, we'll buy a break above the pin bar with a stop loss 1 pip below the pin bar's low.

Pin Bar formations with candlesticks

The formation of pin bars with candlestick charts is identical apart from the terminology, which is slightly different. A bearish trend reversal with the formation of a pin bar can be called an inverted hammer, a doji, a tombstone, or a shooting star. A bullish trend reversal with a pin bar formation can be called a hammer, a doji or a doji dragon.

Summary

Pin bar formations can be a very useful tool in your arsenal of forex trading setups. The best pin bars setups occur when in agreement with other signals such as support and resistance levels, the confirmation of a dominant trend, or other confirming signals. Look for pin bar configurations that match all of the characteristics listed in this tutorial, leaving aside all of those which you don't trust. Pin bars work in all timeframes, but they are particularly powerful on 4-hour, daily and weekly charts.

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