Last week, we spoke about the inclusion of Pin Bars in Forex trading strategy.
Pin Bars can be defined as a price action reversal pattern which shows a certain level or price point in the market that could be rejected.
A good idea about pin bar formations can make it possible for you to understand the possibility of how profitable a chart pattern can turn out to be.
Pin Bars and It’s Many Names
In the global stock market, a single terminology may be expressed differently in different countries.
Pin Bars that are usually an integral part of classic Japanese Candlestick Patterns are referred to by several names.
Some of them are :-
- Long Wicket Inverted Hammer, Long Wicked Doji, Shooting Star or Long Wicked Gravestone – All these names signify a bearish reversal or a top reversal pin bar formation.
- Long Wicked Hammer or Long Wicked Dragonfly – Both these names refer to a bullish reversal or a bottom reversal pin bar formations.
Now, let’s take a closer look at the chief features of a pin bar formation.
Pin Bar Formations – Chief Characteristics
- Pin Bars should usually have a long upper or lower tail that is also at times called a “Wick” or a “shadow”.This is usually represented by a pointy portion of the pin bar that reflects on a false break of a level or a rejection.
- The portion between the open and close of the pin bar is known as it’s “real body” or body. This portion is usually represented by the colour white or any lighter colour when the close is found to be higher than the open. Similarly, when the close is found to be lower than the open, the portion is colored black or any darker shades.
- The clearer the clarity of the open and close of a pin bar, the better. The open and close of the pin bar must definitely be quite close together – equal or representing the same price.
- It is necessary for the open and close of a pin bar to be near one end of the bar, the closer it is to the end of the bar the better.
- The tail or shadow of the pin bar jutts out (or sticks out) from the price bars surrounding it. In such cases, the longer the tail of the pin bar the better sign it’s considered to be.
- Remember to find a pin bar tail to be 2/3rd the total pin bar length or more while the rest of the pin bar must be 1/3rd the total pin bar length or less.
- The end placed opposite the tail is often known as the “nose”.
Different Types of Pin Bar Formations
1. Bearish Reversal Pin Bar Formation
This is a reversal setup where the tail of the pin bar is found to be pointing upwards as it shows rejection of higher market prices or a level of resistance.
A Bearish Reversal Pin Bar Formation is often an indicator of an eventual drop in price.
2. Bullish Reversal Pin Bar Formation
This is a reversal setup where the tail of the pin bar is found to be pointing downwards as it shows rejection of lower market prices or a level of support.
A Bullish Reversal Pin Bar Formation is often an indicator of an eventual rise in price.
How to Trade Using a Pin Bar Formation
The Pin Bar Formation is a reversal setup with several entry possibilities.
A general thumb-rule to follow in case of pin bars is to check whether the pin bar formations are well-defined.
Keep in mind that all such formations are not created equally and the trick is to look out for formations that fit the descriptions mentioned above.
Though there are several pin bars that are found to be profitable while occurring in range-bound markets or major market turning points, pin bars taken with well-defined daily chart trends are found to be of most accuracy.
When it comes trading in Forex with reference to Price Action Trading strategies, the pin bar formations are considered to be absolutely indispensable.
The best pin bar strategies are found to be a result of a conflux between important market signals such as support and resistance levels, important trend confirmations and vital market techniques.
While relying on pin bar setups, make sure your strategy meets the characteristics described as part of this article as they are tried,tested and found to be successful in most cases!
Remember that though pin bars work on almost all time frames, they are found to be most affective on 1hour, 4 hour and daily chart time frames.
Read more about other trading strategies at : stockmarketsignals.com/blog