A pin bar is one of the most popular candlestick patterns. It can play a role both as the basis of a trading system and as the auxiliary method for confirming other signals. The pattern itself consists only of one candle. It is instantly visible on the chart, which makes it very popular. The pin bar candle is universal and suitable for any market. This article discusses this pattern and developing a Forex pin bar strategy.
Basics of the Candlestick Pattern
The term “pin bar” is a short version of “Pinnochhio bar” that refers to a character who tends to lie. The pattern looks like a single candle with a small body and a long shadow on one side. There are two types of pin bars. The first one is a bearish pin bar. It has a long upper tail. The second one is a bullish pinbar with a long lower tail.
Bullish candle usually appears at the bottom of the market. The long wick is explained by an attempt by bears to push the price even lower. But the market rejects the continuation of the downtrend and the curve reverses. Due to the repelled attack of the sellers, the lower shadow is long and several times larger than the body size, and the upper tail is significantly smaller or absent.
A bearish pattern is formed according to a similar logic, but the order of actions of traders is reversed. The bulls are trying to continue the upward movement and update the maximum, but the sellers manage to seize the initiative. The long tail should be at the top of the candle.
Understanding the Pin Bar Candlestick Pattern
The pin bar candle meaning can be understood in the content only. For example, the position of candles on the chart is important. If there is no preliminary movement and the market is flat, we can't say about the formation of a pattern. In other words, there can be a fake pin bar candlestick.
The next factor is the length of the wick. Normally, it has to be five times longer than the short shadow. Obviously, there is no strict rule, and it is individual for different pairs and markets. However, the longer wick indicates strong resistance in the market. Last but not least. If we observe a bearish pin bar on the top of the uptrend, it must be red. And, vice versa, the bullish pin is supposed to be green. If all three conditions are in place, there is a high chance of trend pin bar reversal.
The Significance of Pin Bar Candlestick Pattern
We mentioned above the importance of the context when observing a pin bar. Otherwise, this pattern can be a bad friend for traders. Beginners are often fooled by its simplicity and make rapid decisions as soon as they see such a candle. But the bearish or bullish pin bar pattern becomes really significant only if all surrounding conditions are met.
Experienced traders often use it not as a main but as a supportive signal. Modern trading programs allow for utilizing numerous technical indicators. You can use other tools like engulfing pattern, parabolic SAR, etc. Several strong and not contradicting signals will underline the significance of a pin bar and help to make a well-informed decision.
How to Trade the Pin Bar Candlestick Pattern
To become a professional trader, it is important to get your own experience and build a strategy that is based on your comprehension of the market and the trading process. You can get this experience by making numerous mistakes on a demo or a real account. However, the following tips will help you minimize your losses and make fewer mistakes when dealing with a pin bar candlestick pattern:
- Give priority to signals from a higher timeframe. The weekly pin bar is stronger than the pattern with the H1-H4 scale.
- Keep in mind that models' reliability drops significantly at lower time intervals. You can find many working patterns on M1-M5, but it’s difficult to work on these time frames in real time.
- The presence of a pinbar does not mean that the price will immediately move in the desired direction. Filters are needed, but even if they are present, there is a chance that the pattern won’t work.
- Always set take profits and stop losses. It will reduce the risk level. And the risk management is a mandatory part of any pin bar trading strategy.
- Do not use patterns with too long shadows. They indicate market uncertainty and the trend may continue.
If you’re using a pin bar strategy that is based on graph reversals, pin bars can help you. They are easily determined, and if you take into account other signals, you can catch the very beginning of the new trend.
Advantages and Limitations of Pin Bar Candlestick Pattern
A pin bar pattern has many pluses, which are simplicity (it consists only of one candle), visibility, and a clear outcome. It makes it quite popular, especially among new traders. But it is important to remember its limitations as well. Negligence to these limitations may cause different mistakes that people make when pin bar trading:
- The belief is that the market will always reverse after a pin bar. An uptrend will not end just because a bearish pin bar appears on the chart. It will take many more factors to reverse a long-term trend. If you see a pinbar against the trend on the chart, look to see what happens next. There is a possibility that the current trend will continue.
- Lack of attention to other signals. Due to its simplicity, a pin bar in Forex often makes a core factor for making a decision. However, if you only pay attention to pin bars, you can miss out on many other trading opportunities. To avoid this mistake, it is essential to have a holistic understanding of a market and comprehend price movements in general.
- Making the same decisions after every pin bar. The body and the shadow are very important because they show who is in control of the situation — sellers or buyers. It is also worth taking into account the price movement and the size of the candles before the pin bar appears.
All these mistakes may happen if traders perceive a pin bar as universal and free of error patterns. That's not true. A pin candlestick has its limitations, and it is definitely not the most precise tool in a trader's toolkit. If you use it wisely, it will give you useful information; otherwise, it may mislead you.
The Bottom Line
A pin bar candlestick pattern is extremely common on Forex. It is simple, clear, and easily detected. The great advantage is that this pattern signals trend reversals that often promise a decent profit. It is worthy of your attention and can give you valuable information. At the same time, pin bars should be analyzed only within a context, and additional indicators should be taken into account for better decisions. To raise your efficiency level, you can use the best Forex robots. They will definitely give a boost to your performance.
