The Pinbar Magic

Dear Readers!

On this NFP Friday it is always good to take a step back and reanalyze our skill set. What aspects could we review? What things can we read and learn? What studies or testing can be done?

NFP days can be crazy and sometimes it could be a good thing just to step back and do some work on our skills. It is similar to sharpening a knife. Cutting food with your knife will work fine for a while, but at some point or another, you will need to sharpen it up a bit. Fridays are good for that.

Introduction

Our topic of the week is pin bars. These types of candles can be great clues for any strategy and potential entries. They translate a very powerful source of information for us traders. Read here more about candle sticks.

They can be used for entry and exit possibilities, SL protection areas, scale-ins, scale-outs.

Definition

Let us start with the basic. A pinbar is a type of a candle stick, just like any other candle sticks. However, not every candle stick is a pinbar. A pinbar candlestick is when the pressure of one side of the market pushes back the other side within the candle. Read here more about certain types of candle sticks. 

Of course all candle sticks reflect a power balance between sellers and buyers. The candle shows the winner of that battle. In some cases the winners are clearer. These candles translate more information and are therefore more valuable.

The pinbar is very valuable as it translate good information. It means that the power of the market was pushing the price in one direction and within that time frame, the other side of the market forced price back to its original position.

Or in short, one side of the market had control, but it lost that control to the other side of the market.

Bearish and Bullish pinbars

Let us illustrate that with an example. A currency is going down and the selling pressure is strong. The candles are moving down with only a pause once in a while. Then in the next candle the sellers keep control, but within that same candle the buyers wrestle control back on lower time frames and the candle actually does not close bearish as all. It has a huge wick at the bottom, and the buyers sometimes even closed the candle in a bullish close. This means that there is a decent statistical probability that the currency pair can turn around for a while.

The opposite is true a bearish pinbar. In this case price will run up and reach a climax. In that case we will see a wick at the top of the move, which signals that the sellers were able to take control over the buyers.

Clues

Now that everyone knows the workings of candle sticks we must warn every trader that these patterns are just clues of a story. Not one single candle stick or pinbar is 100% accurate. We must take the piece of information as a probability. When looking at any concept of trading, there is always a certain probability that the currency will walk a certain path. The same holds true for pinbars. There is no guarantee. But they do give valuable clues.

02-01 EURUSD 4 HR

Pinbar guidelines

The pinbars are a great trading tool, especially if used in combination with other methods and strategies.

One of the methods a trader can use is confluence. If there is confluence in an area of resistance or support, the pinbar works well as a confirmation. It could happen in an area where you are already expecting resistance or support. For example, the trader sees a Fibonacci retracement  with a trend line. A pin bar in that area would confirm the analysis and give that extra edge. The pinbar is an additional confirmation of a trader’s expectations and this could increase the odds of the trade succeeding.

Also not every pinbar is created equally. Some pinbars are of higher quality than others. Obviously a 1 minute pinbar has no value at all, while a day pinbar has a great value. We must take time into consideration as well.

Last but not least, it also greatly depends on how strong the balance of sellers and buyers is. The stronger the turnaround within the candle, the more likely and powerful the pinbar could signal a reversal.

Using the pinbar

The pinbar could also be great tool for money management. It could be used for entry and exits, but also for stop losses.

The pinpar gives a great zone where one of side of the market has taken over control and the other side has lost control. That gives a trader valuable information what levels are considered key by the market.

For example, a bearish pinbar at the top of a bullish move shows that the bulls have lost control. For now. Of course, the pinbar could also be created by profit takers. In that case a safe play could be to trail stop the trade below the candle low. That way the trader is still in the trade if the market keeps moving north. By not clicking out, the trade can stay in the move up if the wick is indeed created by profit taking.

If the move down however is a bearish turn around, then the trader has protected themselves by locking in profit under the candle low.

Entries are also possible when price retraces back to the key level of resistance or support. When price returns relatively close to that area, the trader can attempt an entry with a relatively small stop under the low or high.

If the pinbar occurs as part of a continuation of a down or up move, the pinbar can provide a useful scale-in moment. The market then showed an attempt to retrace but it was rejected by the market and the trend continued after that. A scale-in might be a wise thing.

If you have any questions or comments, please do not hesitate to ask them down below in the comment section box.

I wish you Good Trading and a Great Weekend!

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  • Augustine Nsofor

    This is a good article from you sir. i want to learn more about this pin bar on price Action sir. i will like you to be my mentor sir.

  • Fabrice Goeyvaerts

    Thanks Chris for this excellent article !

    Your chart shows how good those candles can work and if well used how rewarding they can be.

    In my trading I nearly always use them as signals on Daily and H4 timeframes. I have the best results when using them in trend continuation strategy.

    I think that with patience one could be very profitable by only using those pin bars forming at important levels or during a trend.

    I take the opportunity of your article to also thanks Nathan and Winners Edge Trading who taught me importance and power of those wicks and how to use them !

    Always enjoy reading your articles … keep the good work !