Pin bar reversal setup
The pin bar is probably the most well known price action setup, as it is a very simple price action candle to spot. So lets talk about the pin bar structure, for me I look for a candle that has a large wick or tail that is atleast three times the length of the body of the candle. Its tail must stick out away from price because we are using this price action candle as a reversal signal and it must form at a swing point. The longer the tail, the stronger the rejection and this gives us a clue price may be about to turn around.
Where do we look to trade Pin bars from?
If we want to short the market in a down trend, we look for a pin bar to form at a swing high and if we want to take a long position with an uptrend, the pin bar must form at a swing low. Pin bars are reversal candles not continuation candles and so must form at swing points.
Now there are a few other essential points we need to consider to help validate a pin bar. These rules enable us to differentiate between the right pin bars to trade and the ones which we should let pass.
1. The pin bar must be large in size and stick out. For a pin bar to stick out, the pin bar wick or tail must protrude out away from the current price. To check the size of the pin bar is correct, we need to take a look at the previous candles that form before the pin bar in question. Looking to see if the pin bars size or range of the candle is as large or bigger then the previous candles range.
2. The open and close of the pin bar must be within the previous candle range e.g, If we are looking to take a bearish pin bar to short the market and price closes above the high of the previous candle range, it would not be a valid bearish pin bar and so void. The same conclusion would arise if the pin bar closed below the low of the previous candle range, when looking to take a bullish pin bar, long.
3. The colour of the body of the pin bar is irrelevant, as long as it closes inside the previous candle, it’s valid.
4. The wick or tail must be three times larger than the body of the pin bar.
5. The pin bar which forms must reject an important key level. Remember we don’t trade a setup unless it forms at a key level. Levels are paramount.
So here’s some examples of valid pin bars;
Check out my pin bar video, it explains all the key facts.
Module 1: The Basics
- Unit 1: What is the Forex?
- Unit 2: Forex terminology
- Unit 3: Fundamentals v technical analysis
- Unit 4: What is price action?
Module 2: Market Analysis
- Unit 1: How to analyse the markets
- Unit 2: What types of trades can we use?
- Unit 3: Marking support and resistance levels
- Unit 4: Time frames/best times to trade
Module 3: Price Action Setups
- Unit 1: Price action setups introduction
- Unit 2: Pin bar
- Unit 3: Engulfing bar
- Unit 4: Inside bar
- Unit 5: Sandwich combo setup
Module 4: Chart Setup
Module 5: Trade Management
- Unit 1: Trade plan
Module 6: Trade Psychology
- Unit 1: Psychology introduction
Module 7: Continue your learning
- Unit 1: What next?