Trading a Pin Bar – the ultimate guideline of mastering the Pin Bar candlestick!
There is no doubt that the ‘Pin Bar’ candlestick pattern is the most powerful and reliable price action formation. It is easy to identify them and yet it is a very high probability trading signal! It is my favorite candlestick pattern!
Actually, a pin bar is a ‘Rejection Candle’, it indicates a reversal by rejecting the present support or resistance line and often reverses until it finds another support or resistance! You can grab a massive move if you identify a Pin Bar successfully. So, the candle must reject a support, resistance, trendlines (support/resistance), swing support and resistance of channels or significant level of Fibonacci (e.g. 50%,61.8%,78.6%) to call it a ‘Pin Bar’!
Trading a ‘Pin Bar’ on a daily chart or a weekly chart are more profitable, Pin bars on H4 are okay but not always recommended. Trading ‘Pin Bars’ on lower timeframes (less than an H4 chart) are not worth trading.
The Terms and Conditions of trading a Pin Bar:
There are few things you should check to get an edge over trading a ‘Pin Bar’. Remember, a Pin Bar is definitely not a ‘Doji‘ or ‘Hanging man‘ candle, it is unique and it has a different structure. I am describing them below:
1. A ‘Pin Bar’ must reject a key support or a key resistance line (major support or resistance zone are also okay)! No rejection, no pin bar!
2. The tail (wick, shadow) of a Pin Bar should be at least 2 to 3 times larger in size than the body! A longer tail is the key element of a ‘Pin Bar’! Longer the tail powerful the pin bar is! It is the tail which rejects a support or a resistance!
3. The body of a pin bar comparatively smaller (distance between opening and closing). But the candle itself with the tail usually larger than a average candle/previous candle.
Important Note: A candle only counts when it gets closed. A running candle means nothing to price action. It is worth mentioning that I only follow ‘New York’ closing D1 candles, I won’t even open a chart if it is not NY closing. I warn you against other closings as they are full of fake candles and traps. Don’t walk away, run away from them!
Bullish Pin Bar:
A bullish ‘Pin Bar’ not necessarily means it will always have a bullish body for the candle itself (closing is higher than the opening), a candle with a bearish body (closing is lower than the opening) could be a bullish ‘Pin Bar’ too! Its not a big deal.
Actually, it is the location of the ‘Pin Bar’ which is important. A bullish ‘Pin Bar’ always indicates moving up by rejecting a support, so they will be on the Key or major support zone. Candlewick is the key element of a pin bar. The wick or the tail must touch the horizontal support line or trendline support (lower low or higher low) and reject it by closing above the support line.
Bearish Pin Bar:
A bearish ‘Pin Bar’ signals a downward move by rejecting the resistance! So, the location of a bearish ‘Pin Bar’ must be on the Key Resistance zone (or major resistance zone). The tail of the bearish Pin bar must touch the resistance line or trendlines (higher high or lower high) and reject it by closing below the resistance line. Remember, any pin bar rejecting from resistance is a bearish pin bar no matter how the body of the candle looks like (candle closing could be a higher than the opening).
So, you have to focus on wicks and its rejection zone to identify a bullish or bearish ‘Pin Bar’.
Fake Pin Bar: No Rejection No Reversal
A bullish ‘Pin Bar’ looking candle which closed below the support line is a fake pin bar and doesn’t indicate a bullish reversal. It is still bearish as closed below the support and it did not reject the support rather still following it!
And same goes to a bearish looking ‘Pin Bar’ from resistance zone but closed above the resistance line is a fake bearish pin bar! That candle is still bullish to the price action and did not reject the resistance but following it.
Getting a ‘Pin Bar’ looking candle in between a resistance and support area (or perhaps into a channel) is a fake pin bar as it doesn’t reject anything! A candle like that can happen for a lot of reasons, such as fundamental news or comments. So, it will count as a normal candle. Sometimes, a candle like that could be helpful signaling more continuation in the trend. Don’t panic if such a candle goes against the trend, it will be in the trend sooner than later, it is just noise. Check the screenshots and their explanations below.
How to trade a Pin Bar?
You know by now that trading a pin bar is very profitable. But you should not be looking for them so badly, it could bring you the opposite result. A good ‘Pin Bar’ will come to you, don’t try to find them. They will be easy to find on the key technical levels. So, you might want to know by now how to trade a rejection candle like Pin Bar successfully? What should be in your trading plan to trade a Pin Bar? Okay, no more waiting lets discuss it below:
As you learned, a pin bar is a single bar candle pattern. However, you should not start trading as soon as the ‘Pin Bar’ forms (candle closed)! Wait few hours, a decent retracement can happen. Most of the time the next candle could revisit the support or resistance line (that rejected by the Pin Bar)! Which you should be looking to get more pips and better risk and reward!
How I trade a pin bar?
I calculate my risk and ‘Lot size’ (of course by following risk management), then divide the lot volumes into 2 part. I take a market order with half of the volumes as soon as a new candle opens after the Pin Bar (D1 Candle) and I put a pending order with rest half on 50% fibo retracement of that Pin Bar! I will engage with another market order and cancel the pending order if it doesn’t get filled within next 2-3 days of the pin bar!
A Pin bar might not always have a retracement. So taking half of your desired lot size is a smart play. You can take full position just after the ‘Pin Bar’. I take as much as 2-6% risk on a pin bar trade according to the quality of the trade setup (Supply & Demand zones). I follow pyramid order method if I am risking more than 3%, which keeps my risk under control but larger profit!
What makes a ‘Pin Bar’ invalid to trade?
You might be wondering when a pin bar can be invalid?
Invalid Bullish Pin Bar: Two daily closing below the low of a pin bar (lower than tail’s low) makes a Bullish Pin Bar invalid. You should close your position if still, ‘Stop Loss’ hasn’t hit yet!
Invalid Bearish Pin Bar: Two daily closing above the high of the bearish pin bar makes it invalid. Close your short positions if the trade is still alive and not hit your ‘Stop Loss’ yet.
Such events are very rare. And you should use a decent and safe distance SL, always away from a round number. Now lets check few charts.
Red Up and Down arrows (very left) are the Key Support and Key Resistance (You will learn it when you take the full course), deep blueish horizontal lines . Now look at number ‘1’ candle its a solid rejection of the resistance and it had a 50% fibbo retracement in 3 candles and revisited the key line again. It went to the targets. Look at number ‘2’ , its a solid rejection of the key resistance , I need you to look at number ‘3’, its a fake Pin Bar as it didn’t reject anything, the position of that candle was not in any support zone. Look at number ‘4’ its also a fake Pin Bar. We need a down side tail/wick/shadow to reject a support, we need a bullish Pin bar from Support to have a rejection, not a bearish looking Pin bar.
I need you to look into number ‘5’, the candle had a lower low but reject the Key Support and closed above it. A perfect rejection of the support and it had a great trend reversal run. Now look at number ‘6’ its middle of nowhere, there is no resistance to reject and its a fake Pin bar. Price moved up above the Key resistance to make the resistance as its new support and later it had a confirmation by a pullback (Green A to B). Number ‘7’ is a fake Pin bar too, didn’t reject anything and a bull Pin bar need to reject a support, there is no support to reject.
Number ‘8’ is a Pinbar, It reject the intimidate resistance and if you draw Fibo to green point ‘A’ to ‘B’ this line is exactly the 161.8% expansion (Golden Ratio). So it has a double confirmation of being a Pin Bar (resistance line and fibo golden ratio).
Now lets go to a daily GBPUSD chart to find out Pin Bars.
Look at number ‘1’ its a solid pin bar with a rejection of its previous support. And with the number ‘2’ it had another rejection of another support. Number ‘3’ is a fake bullish looking pin bar, it didn’t reject any support. Number ‘4’ is not a pin bar, it looks like one but we will have to count as simple bull candle. Number 5 is not a pin bar. Number 6 is just a bear candle. A bearish Pin bar looking candle. A bear Pin bar must reject a resistance line, but its location is on a support line.
Now I’m giving you a simple task, Can you identify the bars in the oil chart below? Tell me if number 1 is a pin bar or not and why? And what is number 2?
The difference between an Engulfing and a Pin Bar:
An Engulfing candle is always an outside bar but a pin bar may not always be an outside bar. So, how do you differentiate them? Actually, you can identify them pretty easily as Engulfing Candles have a much larger body and smaller tail (lower than 2 to 3 times of the body ratio of a pin bar). An engulfing candle closing always engulfs the previous candle but most of the times a pin bar body closed between the range of the previous candle! I will link the other article on ‘how to trade an engulfing candle?’ here soon for a better understanding.
Last but not least, a candle will always count as a regular candle according to its body if a ‘Pin Bar’ looking candle doesn’t reject a support, a resistance, trendlines or important fibo levels. See, it’s very simple and easy to remember! You can’t expect a move of 300 or 500 pips every day, there will be market noise full of traps, but you know now which one is a solid pin bar with high probability and which one is a trap and more importantly how to trade them!
It is your turn now! Please let me know your thoughts in the comment section. Share the article with your social networks. It inspires me to share more with you guys!
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