The pin bar is by far my favorite candlestick pattern in the Forex market.
In this lesson, we’re going to cover pin bar characteristics, how to know if a setup is worth trading, and entry and exit strategies.
As always, the term ‘bar’ is interchangeable with ‘candlestick’,
However, the common term has always been “bar” and not “candlestick”.
Table of Contents
What is a Pin Bar?
Before getting into the actual Forex pin bar trading strategy, we need to understand the characteristics.
Let’s start with the tail, which is its defining characteristic and is also sometimes called the wick or shadow.
The tail of a pin bar should be at least 2/3 the length of the entire bar.
The longer, the better, but it must make up at least 2/3 of the bar from end to end.
Notice in the image above, the tail is about 3/4 of the entire bar, so this qualifies.
The body is also important as it represents the open and close of the pattern.
The open and close should be close together; the closer, the better.
The body should also be close to the end of the pin bar. Notice how close the open and close are to the nose.
Last but not least, the nose.
While not as important as the tail or body, the nose is important only as it relates to the tail and body.
This is because if the tail is at least 2/3 of the entire bar and the body is small, then the nose should also be relatively small.
Know too that the pattern doesn’t need a nose to be valid.
Sometimes it’s non-existent if the open or close occurs at the extreme end of the pin bar.
Here’s a short video explanation of the characteristics.
The Two Types of Pin Bars
There are two main types of pin bars as it relates to price action patterns that are taught in my price action course.
Most traders assume the pin bar is only a reversal pattern. And while it can signal a reversal, it can also be a continuation pattern.
First, let’s look at the more common way to trade pin bars as a reversal pattern.
Pin bar reversal pattern
The reversal pin bar (above) is best played in a ranging market or on a pullback within a larger trend. Let’s look at both in action.
Below is a great example of a reversal that formed after price broke through support and then retested it from the other side as resistance.
This is actually a pattern that’s still taking shape as I type this.
Here are two more examples that occurred at range highs.
So far we’ve seen pin bars that form on pullbacks as part of a larger trend as well as ones that form in ranging markets.
Now let’s look at the less common way to trade them as a continuation pattern.
Pin bar continuation pattern
The differentiating factor here is that the continuation pattern doesn’t have a pullback (or very little) relative to the examples above.
The key to this pattern is that the pin bar must form in the direction of a trending market.
Notice the pin bar just in front of the one I’ve identified in the chart above, the one that’s facing the other direction.
It’s also a valid pattern.
However, it’s going against the trend, so it would not make for a good trade.
Here’s a zoomed-out chart of the same setup to see what I mean…
I wanted to put this chart up for three reasons.
- To show that our pin bar would have given us a nice gain because it’s well-formed and in the direction of a strong trend
- The first pattern that formed in the chart above was against the trend, so it would have been a “no trade” for us
- The reversal pin bar I pointed out in the chart above is technically perfect. However, it would have been a “no trade” for us. If you said because it’s against the trend, you’d be right! But there’s another reason why we wouldn’t have traded that reversal and it’s described in the next section.
Pin Bars and Confluence
Confluence is the coming together of two or more “things”.
For Forex traders, confluence means the coming together of, or combination of, two or more price action patterns, levels, or indicators.
Let’s look at the setup below, which is the exact same setup we looked at before, only this time we’ll start identifying our “factors” of confluence.
Let me clarify what’s happening here by identifying the various factors at work.
To make this as applicable as possible, I’ll go through each factor as if I were doing my own analysis.
- Well-formed pattern rejecting previous resistance level, now acting as support
- The trend is clearly up
- The pin bar is rejecting the 8-day EMA, which is intersecting the horizontal support level
- No immediate resistance above the pin bar (it has room to run)
So there you have it, a simple pre-trade analysis using confluence factors. It’s really that simple.
I should point out that #4 above isn’t technically considered a confluence factor, but clearly identifying support and resistance levels is an extremely important part of any pre-trade analysis.
You’re probably wondering what the two moving averages are all about.
Well, I use the 10 and 20-period EMAs in my trading. I find that they help to quickly identify the trend and also act as dynamic support and resistance.
As a side note, you might find that I don’t use them on all the charts posted on this site, but that’s only because I don’t want to unnecessarily clutter the price action patterns.
You are probably on to it by now, but I want to point out why that reversal pin at the top of the GBPCAD chart above doesn’t fit our criteria. So here it is…
In other words, we didn’t have the necessary confluence to consider this a worthy pin bar to trade.
It has everything going against it except that it is a well-formed pin bar.
The two most important reasons why I wouldn’t trade the reversal pattern above are:
- It’s against the major trend
- There’s no resistance level to give me a reason to believe that it is indeed a reversal point in the market
That about wraps up confluence. Think of these confluence factors as your pre-trade checklist, similar to a pilot’s pre-flight checklist, only ours is a LOT shorter…at least I hope.
Pin Bar Entry and Exit Strategies
Because there are a few different ways to get in and out of pin bars, and because this lesson is already pretty long, I decided to include entry and exit strategies in a separate lesson.
Be sure to check out the link above to continue your pin bar education.
Frequently Asked Questions
What is a pin bar?
A pin bar is a type of candlestick pattern that suggests strong buying or selling pressure because of the long upper or lower wick, also called a shadow or tail.
What characteristics define a pin bar?
It must have a wick that is at least two-thirds of the candlestick’s range. So the body of the candlestick must be relatively small compared to the overall size of the pattern.
What makes these patterns effective?
The most effective pin bars occur at key support or resistance levels.
Are all pin bars reversal patterns?
Not necessarily. While most pin bars signal a reversal, they can also occur within a trend. So they can be continuation patterns under the right circumstances.
Is pin bar a good trading strategy?
It is, but only when combined with other factors, including the quality of the pin bar itself and whether it formed at a key level, among others.
Are you currently trading pin bars? If not, will you in the future after reading this article?
Let me know right now in the comments below.