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Why Did Last Week’s USDJPY Bearish Pin Bar Fail?

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Man dealing with failed trade

Happy Friday!

This week’s question comes from several traders, who asked:

Why did last week’s USDJPY bearish pin bar fail?

Losing is never fun, especially when it comes to money.

However, it also happens to be the best teacher. Although we always strive to make a profit, chances are you will learn far more from a loss than you will from a win.

When you think about it like that, losses aren’t all bad. In fact, they can be incredibly useful if you keep an open mind and don’t shy away from the pain they cause.

Today I’m going to share a recent trade setup that went the wrong way. And by wrong way, I mean it turned out to be a loss for those who acted on it.

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There were, in fact, three issues with the setup, each of which I will discuss below. By knowing what went wrong, you can be better prepared the next time you encounter a pin bar setup.

Read on to sharpen your pin bar trading skills.

The Setup

On March 27 I posted a trade idea on the USDJPY. Following an intraday rally above the 105.50 key level, the pair closed the day back below it.

I use New York close charts so that each 24-hour period closes at 5 pm EST.

Click here to get access to the same charts I use on this website.

The selling pressure above 105.50 left us with a bearish pin bar.

Here’s how things looked at the time:

USDJPY bearish pin bar

This setup had three things going for it.

The first was the trend. Since November of last year, the USDJPY has trended lower by nearly 1,000 pips.

By looking for opportunities to sell, we were using the bearish momentum to our advantage.

The second favorable attribute was the key level. The 105.50 area had served as a critical support area for more than a month before the market finally broke down.

As you may well know, old support becomes new resistance.

Last but not least was the shape of the pin bar. Sure, it wasn’t the most towering pin bar I’ve seen, but it did satisfy the requirements.

Here’s how things looked just 24 hours later:

Failed USDJPY pin bar on the daily chart

The market didn’t just invalidate the setup, it annihilated it. This is an excellent example of why I always use a stop loss.

Okay, so you’ve seen the setup, now let’s discuss how we could have avoided the unpleasant situation altogether.

1. No Rounded Retest

If you’ve studied my free pin bar course, you know that a rounded retest is ideal.

What is that, exactly?

Just as the name implies, a rounded retest occurs when a market breaks a key level and then slowly moves to retest it as new support or resistance.

Here’s a visual to illustrate how this differs from an immediate retest:

Illustration of a rounded retest after breaking support

Notice the difference in the amount of space and time between these two hypothetical examples.

Let’s take another look at the USDJPY setup from last week.

USDJPY no rounded retest on the daily chart

See how there’s no space between the break and the retest?

This is not ideal. It suggests that there’s a decent amount of buying pressure near the lows, hence the immediate bounce to a higher level following the breakdown.

That isn’t to say that a setup without a rounded retest isn’t valid, but it does call for a more cautious approach.

Look no further than last week’s failed USDJPY pin bar.

2. Bullish Engulfing Pattern the Day Before

This one could be debatable depending on your broker, but the day before, the pin bar appears to have formed a bullish engulfing pattern.

I did notice this at the time of last week’s commentary. However, the thinking at the time was that the bullish engulfing candle is what triggered Tuesday’s intraday rally.

In other words, I figured the downtrend and recent close below the 105.50 handle were enough to outweigh the bullish engulfing day.

Regardless of what I thought, having a bullish pattern directly in front of a bearish one is not conducive to a short position.

Be sure to keep this in mind the next time you’re scanning through your charts.

3. Relatively Small Range

If you read last week’s USDJPY commentary, you may recall my comment about the relatively small size of the pin bar.

Here’s what I wrote:

Although the range of Tuesday’s move isn’t quite as extensive as I’d like, the pin bar shape, bearish momentum, and key level are all there.

The size of a candle or bar is a good indicator of how much buying or selling occurred during that period.

Of course, a thinly traded market can skew the results. This usually happens on a Friday or when a major player like the U.S. or U.K. are on holiday.

In general, though, a larger candle suggests a greater number of buyers or sellers depending on whether it was a bullish or bearish session.

When we’re scanning for pin bars, larger is usually better.

Larger than what? In this case, larger than the preceding candlesticks.

If we review last week’s USDJPY setup, you’ll notice that the pin bar wasn’t all that large relative to the previous candlestick.

That’s a bit of a problem. It’s why I made the comment I did last week about the pin bar’s range not being quite as extensive as I’d like.

The only benefit to a relatively small pin bar is a tighter stop loss. But that doesn’t do you any good if the setup fails.

So remember, larger pin bars are better all else being equal. The range of the pin bar should be comparable or greater than the size of the last few candles.

A Better Way?

The somewhat ironic part about all of this is that those who placed a sell stop order below the pin bar’s low were never in this trade.

As you may already know, I prefer to use the 50% entry method when trading pin bars. It offers a more favorable risk-to-reward ratio, sometimes doubling the potential profit of a setup.

However, in this case it backfired.

Those who entered short at 50% had their stop loss hit not long after.

On the other hand, those who opted for the safer (yet less profitable) approach of waiting for a break below the pin bar’s nose were safe and sound.

That’s just the way it goes sometimes. Still, it’s an excellent example of one difference between these two entry methods.

I will continue to favor the 50% entry method for its more favorable risk-to-reward ratio. It remains the better option for my style and continues to come out ahead over a series of trades.

Final Words

We’re in the business of trading probabilities. Even if you do your best to stack the odds in your favor, it doesn’t mean the market has to agree with you.

However, there are certain attributes we can look for to determine whether a setup is worth the risk.

The three attributes above are a great place to start. Does the fact that the USDJPY setup lacked these attributes make it a “bad” setup?

Not necessarily. I would, however, say that it makes it a “B+” setup rather than the “A+” setup we should be aiming for.

I mentioned some of these concerns in the member’s area shortly after the USDJPY pin bar formed. My suggestion in these cases is always the same—either cut your position size in half or ignore the setup altogether.

Again, there is no right or wrong answer here. One reason I love trading is that it’s all subjective. You could say that the attractiveness of a setup is in the eye of the beholder.

The key is to find a style of trading that works for you, something that fits your personality.

If you can do that, you can remove the sting from a loss. It’s no longer a painful experience, but rather a way to further refine your style and improve your bottom line performance.

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Here’s what you can do to get involved and have your question answered in next week’s post:

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Leave a Comment:

66 comments
MIMI says

Hi Justin, I did not take the trade for one reason only and that is that it was fiscal year end for Japan and also the reason why I bought JPY since late Jan into end of March. I’m expecting JPY to become weaker from April. I also take seasonality into account with my trading strategy. Of course, nothing is guaranteed in Forex and appreciate you showing us why this trade failed for those who sold USD/JPY. Always learning from you.

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    Justin Bennett says

    Thanks for sharing, Mimi.

    Reply
Shan Khalid says

Nice work Justin, what is next for Usd/ jpy?
And kindly if you provide me daily gbp trade setups i shall be very thankful to you

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    Justin Bennett says

    I don’t have much of an opinion on the USDJPY at the moment. But just like the other yen pairs, I’m only interested in selling opportunities. That doesn’t mean those pairs won’t gain some ground in the meantime.

    Reply
Raymond says

Also, there was a us gdp economic news release which I think did a lot of damage to such a potent set up. The extent to which fundamentals can mess up technical analysis😔

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    Justin Bennett says

    Sure, but this post (like all on this website) was focused on the technical side of things.

    Reply
Lesley says

Go Justin thank you for making it clear. I also saw the whole setup but as I’m also a price action trader I relied more on the bullish engulfing than the pinbar signal. I’m addition I use 2 EMA’s and only enter the trade when I get confirmation. The minute the faster EMA crossed the slower one I concluded that we the price action is heading north. I also went long. Thank you for explaining the pin bar controversy

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    Justin Bennett says

    You’re welcome.

    Reply
heshmat says

Hi Justin.You now have to go buy or sell?

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    Justin Bennett says

    I now have a sit and wait.

    Reply
Tumi says

Thanks Justin for the updates…I must say from my trading journey I have realised that 1.a successful trade is not based upon winning or losing 2.rather a successful trade win/loss is one that meets all of your daily analysis and checks prior to execution…

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    Justin Bennett says

    Tumi, that’s spot on. Even a profitable trade can be “bad” if put on for the wrong reasons, just as a loss can be “good” if put on for the right reasons.

    Good trading is about self-discipline, not trying to make money.

    Reply
Sentry&Void says

The sell setup was a valid one going by the books, but the market destroyed it. Good thing Mr. Justin raised points on why it failed. We learn everyday

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    Justin Bennett says

    Cheers. Thanks for commenting.

    Reply
Ellison Tino says

Hi Justin…i took the trade short and was stopped out as well. Upon further analysis, i saw on the daily timeframe, a falling wedge pattern on a downtrend which to me is a sign of an imminent reversal. And besides, the pin bar in question like u mentioned, was not the best of the pin bars

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    Justin Bennett says

    Correct, there were a few factors working against the pin bar. Thanks for sharing.

    Reply
Dan says

Justin,
Appreciate your gave us your feedback about this trade! It was really very useful to understand why it wasn’t an A+ setup.

It would be very helpful if you could continue such practice in the future! 🙂 Thank you!

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    Justin Bennett says

    Dan, you’re welcome. I’ll try to find the time.

    Reply
Chad says

Uj falls 1000 pips and looking to sell? a little late to the party id say

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    Justin Bennett says

    Chad, are you saying you would’ve bought the USDJPY in February 2016? The pair was down 1,000 pips from its recent high yet continued for another 1,600 pips before it found a bottom in August 2016.

    Nobody here was late to the party as you say. The previous two selling opportunities I mentioned in February worked out, the one last week didn’t. See links below.

    https://dailypriceaction.com/daily-setup/usdjpy-at-risk-of-larger-breakdown-below-107-30

    https://dailypriceaction.com/daily-setup/usdjpy-shorts-favored-below-108-00

    Reply
      Hamid says

      Sir.you are a genius may I ask you can I sell now gbpjpy because Russia and UK tension are increasing

      Reply
    Pierre+Mifsud says

    I TOTALLY AGREE WITH CHAD- IF IT HAPPENED ONCE OR TWICE BEFORE IT IS ONLY A COINCIDENCE JUSTIN! The Pin Bar SHOULD act as a REVERSAL signal and NOT a continuation!

    Reply
      Pierre+Mifsud says

      This is because there was already a break (down) immediately your ”supposed” bearish pin bar had appeared

      Reply
antonio says

Grazie Justin non mi aspetto che tutte le previsioni siano valide al 100%,per quello che esistono gli stop loss. Tu stai facendo miracoli in questo mercato!!!!!
Grazie ancora per i tuoi insegnamenti
La vita è in noi oggi e noi creiamo il nostro domani
Ciao Sir

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Chucks says

There is no doubt that daily TF gives wonderful setup to trade but its necessary to consider lower TF for nice entry point, even on 4H TF, nothing suggests that market is going south on that day

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    Justin Bennett says

    As long as it works for you.

    Reply
      Bokhory raja says

      A higher time frame and a lower next to it gives you the right track where the market will be heading. Even if the daily TF has formed a bearish pinbar, the 2 hour TF is in a down trend but the bullish engulfing candle shows a reversion to the mean. The pinbar shows a retest of the EMA but didn’t go lower on the opening on the next day, instead moves upwards where the EMA are narrowing to go in an upward movement. Am just sharing my point without contradicting you as the lower TF helps in showing when to stay away or wait for more and when to enter a trade following a pinbar or BE pattern on the daily TF.

      Reply
third says

i think we should always wait for next candle after the pin bar to close for confirmation whether it is bearish/ bullish or not. it has always been the case for candlestick patterns…

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    Justin Bennett says

    Not for the way I trade or teach, but as I mentioned in the post, whatever works best for you.

    Reply
DONKOR KINGSLEY says

How long could price have traveled had it continued that pattern?
Because the USDJPY was already trading lower.

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    Justin Bennett says

    Just because a market has moved lower doesn’t mean it can’t continue lower. See my response to Chad above.

    Reply
antonio says

questo engulfing che si è formato su USD/JPY prima del Pin Bar non è un po dubbio:” La candela che inghiotte deve rompere un livello di resistenza chiave per essere considerato negoziabile”?
Grazie Ciao

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Mattilight says

Am shot of words to describe your attributes for a good mentor. Those traders especially the newbies who are not following your blog are really missing out.
For being able to come out to share your view on why a setup was invalidated goes a long way to tell your burning desire for ur followers to become successful traders.
Thks a lot, I have really learn a lot following ur blog and I will keep following u till I sign up as ur student.

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Mrigapatika says

The last three lows and highs make a descending equidistant channel on the daily TF. The price bounced from the lower range. Too bad I noticed it too late.

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Matthew Okafor says

Please can you explain to me what you mean by 50% entry method reward ratio.
Thanks

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Annton says

Hi Justin
Great article
I also took short usd/jpy not just on your advice but because I trade what I see and that’s the way I seen it I dropped position size because I had doubts but it is great that you explain the losers as well as the winners as this really shows your honesty and integrity in all your teachings
When it all went wrong I thought thought to myself how are you going to explain that one and you have done so perfectly
Never trust the markets hey!!!
Best regards
Annton

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Bafana says

Sometimes a pin bar set up fail because it did not meet its full characteristics such as a long tail and a nose as well as the small body.entry at the 50% of the pin bar or pending order below the nose

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Cobus says

Great article thank you very much.

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nawaf says

If we are in every perfect deal we win to become a millionaire, but chances are supported by the price patterns and intelligent of asking only a little

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Vitor_fx says

Well, we’ve learned from Justin that there are no bullet-proof setups. We can elaborate on the reasons for that turnaround. I recall that it was made public that the USA was negotiating with China behind the curtains for access to the Chinese market. However, this information did not exist (or was not public) at the time of setup. We can not control the unknown. What we can do is keep the risk under control and with a low magnitude. Thank you Justin for this article!

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    Roy says

    That’s why we must usa a stop loss, no matter what, or how certain we might be about a trade. Having a stop loss is a must in trading…always.

    Reply
      Howard says

      Agreed. There is no certainty in trading. Therefore always use a stop loss.

      Reply
Howard says

Excellent analysis Justin, thank you. Extremely helpful to learn from recent losing trades as these are fresh in our minds. I would very much like to see more of these in your blog.

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sam says

Justin.. Thanks for the insights.

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Nguyen+Dinh says

A clear and profound analysis.
I’m getting more knowledge.
Thank you very much!

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Richard says

Isn’t it better to have have pin bar that is longer but at a key support area?

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Robert DeCuir says

Justin, while I’ve only been following you for a short while, I would like to say “thank you” for not only posting your commentaries regarding possible future trades, but for the detailed explanation for the USD/JPY setup that didn’t quite workout! Wishing you the best.

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Mafeno says

Wow! Great analysis there Justin. I was one of those who jumped into this trade without breaks (no SL) on and now I am deep in a draw down.

Would the pair continue it’s downward trend or are we seeing a reversal now?

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Steve says

would have saved a bit if I kept to my initial stop-loss. I moved it further and got burned more

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    Roy says

    hopefully, you will not move your stop in the future.
    goodluck.

    Reply
Thabiso Segoe says

Justin (our mentor) said it all, it drills down to your style of trading” The key is to find a style of trading that works for you, something that fits your personality.”, I was waiting for 4hrs Time frame to give a me a pullback set up following bears with a close under 8EMA for my comfortable risk reward ratio. We all know with the market we will not be 100% correct no matter what indicator we use to filter out wrong signals, we can only increase the favourable outcomes.
As they say Price is king and trend is your friend that you can follow, personally I respect trend, most of all I fear Price, if the two are not talking the same language I stand aside and wait for Justin analysis for guidance.
Many pros stopped posting and sending set ups because of other TRADERS who do not understand trading (others think they know better). We know that we cannot tell the market what to do nor twist the markets hand, we can only anticipate and take the opportunity as it comes and use our stop loss as our safety net.
Please read and re-read Justin’s trading articles, and if u do you will realise that the USDJPY Pin bar set up under the significant support turn resistance is a learning curve and a lot can still happen around the zone. Let’s respect Justine’s set ups, we can all look at the same chart but our opinions will differ that is trading. As for the pin bar it was not at its full capacity conditions (the nose was missing) and the other conditions were there, to me there was a trade as the market does not always play out all clear conditions. (Sometimes we can look at the surroundings and pick up the loopholes and not trade but miss out on the big move) I know for a fact that every time I place my trade that some traders are already in profit 3x my stop loss. If I knew better that him I will not be following him.
Thanks Justin for the explanation we are still young in trading and technical.
Many thanks
Thabiso

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yogimaster says

Great lesson, one caveat, in waiting for your price to be triggered below the pin bar you have momentum on your side, if the trade does not trigger within the London/NY session remove your order. This will keep you out of a lot of losing trades, by my calculations @ 50%.. Yogimaster.

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Pierre+Mifsud says

I WOULD HAVE NEVER TAKEN THIS TRADE AS THIS DOES NOT MEET THE CRITERIA OF A REAL PIN BAR AS IT OPENS ONLY MARGINALLY WITH THAT OF THE PREVIOUS CANDLE

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    Pierre+Mifsud says

    AND PIN-BARS SHOULD BE REVERSALS IN PRICE ACTIONS NOT A CONTINUATION OF PRICE ACTION

    Reply
Deos says

You are a great mentor Justin and i learn a lot from you every single day… Indeed i never took this bearish setup because i used some concepts i learned with you. The pair was carving a downward sloping flag(which is more. clear on 4h chart) which signals a loss of bearish steam, and since the breakdown of the last rectangle consolidation and the multiyear uptrendline, we never had a full retest both former supports as resistances, also the price was around 500pips far from the weekly ema thus i was expecting a mean reversion to 109 area soon…

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Shirantha says

It is a great review I ever read about a failed entry. Thanks Justin. Best regards!

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Chima says

Wait, I thought Pinbars are for reversals. I don’t think this should be even considered a retest, whether rounded or not. At least shouldn’t the direction of the nose of the pinbar acted as an indication of a reversal?

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Yousri says

excellent analysis
I did not take it because of the bullish engulfing , which I also did not trade long because it was counter trend

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Kevin says

This is the bad hand of the big boys trying to shade us out of the trade before the market finally resume downwards. I bet the bearish trend is still intact

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Diana says

I took it and lost. It really was not a large enough pin, but sometimes the small pins will yield good results. Not this time, though..

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nityananda sahoo says

Thanks Justin. Thank you very much for your honest attitude. I also favor the 50% entry method for its favorable risk-to-reward ratio. And I only take those pin bars that have more volume than the preceding bar and that produce me at least 60:40 winning opportunities. And at the end of the month it produces handful amount of money. Thanks once again my dear friend.

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Adekunle says

great work justin, keep up the good work

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Fazlan says

I avoided this trade with Stochastic crossover confirmation to the upside at 20 level.

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auwal+aliyu+umar says

please which time frame is best for making analysis?

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auwal+aliyu+umar says

please how will i be a sussessful trader, i have been reading from this but still i dont know how to know the direction of the market… please boss help me

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Steve says

Is the bar before the pin bar a bullish engulfing bar. Also I tend to wait for a confirmation candle as well.

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