The pin bar is a candlestick pattern that has a long tail up or down and represents the price rejection at support or resistance level in forex trading.
The pin bar is the most powerful and effective candlestick pattern in technical analysis. It gives a reversal signal but there are many other ways too to use pin bar in technical analysis like it is also used to draw SR flip level. In this article, I will discuss every aspect of pin bar candlestick in detail. So, make sure to read this article thoroughly.
What is a pin bar candlestick?
Pin bar candle consists of a small body and a long tail wick. Long-tail up indicates price rejection from a certain resistance level. Long-tail down in pin bar confirms price rejection from a support level. There is also a small shadow below the bearish candlestick and above the bullish candlestick.
There are two conditions to determine a valid pin bar candle.
- body of pin bar candle must be less than 20% of total candle size
- Tail or wick of the candle must be greater than 80%
What is price rejection?
Price rejection indicates a fakeout that hunt stop loss of retail traders. Big banks and institutional traders make this fakeout to eliminate the retail traders before the origin of a new trend. That’s why price rejection helps us to know about the exact key reversal levels.
Lower timeframe Pin bar
To do a deep analysis of a pin bar candlestick, switch to the lower timeframe. You will get an engulfing candlestick. Let’s suppose you got a pin bar on 30 min chart. If you will switch to 15 min, you will get engulfing candlestick pattern. The important point here is candlestick’s opening, closing, high and low price.
Look at the image below, I merged two candlesticks to make a pin bar. Likewise, three or more candlesticks can also be merged to make a pin bar on the higher timeframe.
There are further two types of pin bar candlesticks in the forex technical analysis.
- Bullish pin bar
- Bearish pin bar
Bullish pin bar
A type of pin bar candlestick in which long-tail wick is below the body of the candlestick is called bullish pin bar. The bullish pin bar indicates the reversal of the bearish trend. A good pin bar forms at the end of the bearish trend (oversold condition) and shows a clear price rejection from a specific support level.
In a bullish pin bar, the candlestick’s colour does not matter. candlestick opening price can be greater than closing price or vice versa. But the purpose of the bullish pin bar will remain the same. What matters in the pin bar is the closing price and its location.
Bearish pin bar candlestick
A type of pin bar candlestick in which the long tail is above the body of the candlestick is called a bearish pin bar.
The bearish pin bar indicates the end of forces of bulls in the market and the start of a new bearish trend. The best pin bar forms in the overbought condition and at a specific resistance level. it is necessary to trade only pin bars that form at a certain key level. Because traders like to sell or buy from key levels like Round numbers, Fibonacci levels etc.
Rules for a valid pin bar
To identify a valid pin bar, I have written three rules. you need to follow these rules.
- Body of pin bar candle must be below 25% of total candle size and Tail must be greater than 75%
- Pin bar candle must form at the end of a trend (overbought & oversold condition). it must not form within a ranging market structure.
- Closing of pin bar must be inside the range of the previous candle
A valid pin bar is always located at the swing high or swing low point. View the location of the pin bar candle below graphically.
Psychology of pin bar in forex
To trade a pattern logically, it is essential to know the reason for a reversal in the trend due to the pin bar pattern. let’s suppose, price is in a bullish trend (higher highs and higher lows). Now price reaches a certain resistance level where sellers are waiting to trigger sell orders with stop losses just above the resistance zone.
After picking sell orders from the resistance level, the market decided to start a bearish trend. But market makers don’t want the retail traders to profit. that’ why they will play a game and take the price to above the resistance zone (fake out). after eliminating retail traders from the game, they will bring the price below the resistance zone. Then, a bearish trend will start.
This fake-out is the long wick of the pin bar. This is the psychology behind this pin bar pattern. that’s why I recommended you trade a pin bar that closes within the range of the previous bar. if it does not, then don’t trade this pattern because it will be a trend continuation signal.
Difference between doji and pin bar candlestricks
pin bar candlestick always has the body (round about 25%) at the bottom or top. but a Doji candle does not have the body. Doji candlestick has the same opening and closing price.
Doji candle can form within trend or range and it represents indecision of the market while pin bar indicates a reversal in the trend. you have to trade with the big banks or institutional traders to make a profit. if you will follow retail traders, then obviously you will lose.
Look at the image below to distinguish between doji cand pin bar candlestick.
Pin bar candlestick trading strategy in forex
There are many ways to use a pin bar candlestick in a trading strategy. Here you will learn the best method.
The high or low point of pin bar candlestick act as an important level. let me explain to you how?. When big players move the market and do stop-loss hunting then they leave behind some footprints. footprints mean they leave behind important key levels that act as strong support and resistance levels.
It also makes sense because a strong rejection from a certain level means obviously there must be something interesting in that level. I use this technique to draw important key levels. Look at the image below how important they are.
Higher timeframe analysis
A good method to trade these levels is by using a higher timeframe. A higher timeframe analysis increases the probability of winning in a trade.
how to do a higher timeframe analysis? very simple!
- On higher timeframe (like 4H), draw a S&R flip level using high or low of pin bar long tail.
- In lower timeframe, look for an engulfing or pin bar pattern at that key level and trade in the direction of main trend.
Let me show you on the chart
I have shown you the main reason for writing this article. How can we use the Pinbar pattern to draw key levels ( reversal points) for our benefit? This Article is going to improve your trading to the Next Level in forex.
In short, we just have to watch for a good pin bar in history and draw a horizontal line on tip of its tail. This will act as a key level. you can use these levels to trade with Trend. To learn more about pin bar trading strategies, watch this video.
Pin bar pattern shows the market maker’s footprints. if it is used properly, you will be able to profit from the forex market easily. When you will backtest this pattern at least 100 times, then you can pick the best patterns from the chart easily. The opening and closing price of a pattern is very important. A professional trader can analyse all the timeframes by just looking at the opening and closing price.
There is no difference between hammer and pin bar candlestick. The main psychology behind a candlestick pattern is the same in both patterns. Do not confuse yourself with a lot of candlestick names. remember the psychology of every pattern.