THE PIN BAR TRADING SETUP EXPLAINED :
As the most liquid market in the world, Forex or foreign exchange attracts more and more retail traders. Everyone comes to the market with different expectations but aims for the same thing: to make money. Pin bar trading is a simple, yet effective trading strategy that offers excellent risk-reward ratios.
What Makes a Pin Bar?
Before more details, we need to explain what a candlestick is. To interpret a candlestick, traders consider the following:
- opening price
- closing price
- the highest value
- the lowest value
The difference between the opening and closing prices is the body of the candle. Also known as the real body, it is bullish when the closing price is higher than the opening one, and bearish when is lower. The price action to the highest or lowest point is the shadow or the tail.
For a pin bar to form, traders look at the real body to be relatively small, and the tail of the candle much longer. In fact, the longer the tail, the better.
While not a general rule, savvy traders look for the following condition to happen before pin bar trading: the tail to be so long, so the real body fits at least two times.
Conventional wisdom claims that a bullish pin bar must have a green body (closing price bigger than the opening one) and a bearish pin bar a red body (closing price lower than the opening price).
The Pin Bar Trading Setup Explained :
For a single candle, the pin bar is an impressive reversal pattern. It shows a terrible battle between bulls and bears, signalling that the previous trend weakens.
Hence, for a bullish pin bar, a bearish trend must exist. And, a bullish trend is mandatory before a bearish pin bar forms.
A pin bar trading strategy when it reverses a bullish trend considers the following steps:
- measure the entire length of the pin bar, from the lowest to its highest point
- go short when the price breaks the lowest point
- place a stop loss order at the highest point in the bearish pin bar
- project the length of the pin bar minimum two times below the entry point
Sometimes the market reverses so aggressively after a pin bar that the pin bar trading strategy offers a greater risk-reward ratio than 1:2. To make sure they’re not missing the new trend; aggressive traders move the stop at break-even when the price reaches 1:1 rr ratio and trail parts of it as long as possible.
Fibonacci Ratios with the Pin Bar Trading Setup
Savvy traders have patience, and they know that any reversal pattern shows a conflict. The conflict or the battle between bulls and bears implies the market won’t reverse quickly.
After a bullish trend like the one above, bulls won’t give up that easy. That’s the reason why every pin bar trading strategy needs a stop loss.
However, a pullback is more than welcomed. In fact, pullbacks often happen after a bullish or bearish pin bar.
Fibonacci ratios help in finding an even better risk-reward ratio. Here are the steps to follow on the same bearish pin bar setup:
- measure the length of the bar, from its highest to the lowest point
- use the Fibonacci Retracement tool for finding the 50% and 61.8% levels
- wait for the market to reverse to the defined area
- go short with a stop loss at the highs
- keep the same take profit as in the original setup
This way, traders stay for the same take profit, but with a lower risk. Hence, Fibonacci comes to complement the unique pin bar trading strategy by offering an even greater risk-reward ratio. Not bad for a single-candlestick pattern, right?
What Makes a Pin Bar?
Before more details, we need to explain what a candlestick is. To interpret a candlestick, traders consider the following:
- opening price
- closing price
- the highest value
- the lowest value
The difference between the opening and closing prices is the body of the candle. Also known as the real body, it is bullish when the closing price is higher than the opening one, and bearish when is lower. The price action to the highest or lowest point is the shadow or the tail.
For a pin bar to form, traders look at the real body to be relatively small, and the tail of the candle much longer. In fact, the longer the tail, the better.
While not a general rule, savvy traders look for the following condition to happen before pin bar trading: the tail to be so long, so the real body fits at least two times.
Conventional wisdom claims that a bullish pin bar must have a green body (closing price bigger than the opening one) and a bearish pin bar a red body (closing price lower than the opening price).
The Pin Bar Trading Setup Explained :
For a single candle, the pin bar is an impressive reversal pattern. It shows a terrible battle between bulls and bears, signalling that the previous trend weakens.
Hence, for a bullish pin bar, a bearish trend must exist. And, a bullish trend is mandatory before a bearish pin bar forms.
A pin bar trading strategy when it reverses a bullish trend considers the following steps:
- measure the entire length of the pin bar, from the lowest to its highest point
- go short when the price breaks the lowest point
- place a stop loss order at the highest point in the bearish pin bar
- project the length of the pin bar minimum two times below the entry point
Sometimes the market reverses so aggressively after a pin bar that the pin bar trading strategy offers a greater risk-reward ratio than 1:2. To make sure they’re not missing the new trend; aggressive traders move the stop at break-even when the price reaches 1:1 rr ratio and trail parts of it as long as possible.
Fibonacci Ratios with the Pin Bar Trading Setup
Savvy traders have patience, and they know that any reversal pattern shows a conflict. The conflict or the battle between bulls and bears implies the market won’t reverse quickly.
After a bullish trend like the one above, bulls won’t give up that easy. That’s the reason why every pin bar trading strategy needs a stop loss.
However, a pullback is more than welcomed. In fact, pullbacks often happen after a bullish or bearish pin bar.
Fibonacci ratios help in finding an even better risk-reward ratio. Here are the steps to follow on the same bearish pin bar setup:
- measure the length of the bar, from its highest to the lowest point
- use the Fibonacci Retracement tool for finding the 50% and 61.8% levels
- wait for the market to reverse to the defined area
- go short with a stop loss at the highs
- keep the same take profit as in the original setup
This way, traders stay for the same take profit, but with a lower risk. Hence, Fibonacci comes to complement the unique pin bar trading strategy by offering an even greater risk-reward ratio. Not bad for a single-candlestick pattern, right?
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