November 26, 2014

The Pin Bar Trade Setup

The pin bar trade setup is the most effective price action trade setup there is. It is an extremely powerful setup when used correctly. Many trader only trade off of a pin bar formation and they are very successful traders. In this lesson you will learn what a pin bar is, the characteristics of one, how to trade it and the difference between a great pin bar and an average one.

What is a Pin Bar?

A pin bar is short for Pinocchio bar, the reason it is called a Pinocchio bar is because it is telling us that the market is lying. What that means is that the market price went to a certain level then came all the way back to near the opening price. It lied as to where the price was going.

A pin bar is made up of a small body and a long wick extending from the body. Pin bars are very noticeable and stick out on charts. This makes it easy to identify on charts.

Pin Bar

Pin bars form because the market rejects the prices that it goes to and pushes the prices back to the opening price of that candle. This shows that the market is running out of steam and is ready for a reversal. That is where we get the signal to enter the trade and ride the reversal for profit.

Characteristics of a Pin Bar

A pin bar is very easy to notice on a price action chart but not all of the ones that look like pin bars actually qualify as a pin bar. There are a couple of key characteristics that a pin bar must have to a true pin bar.

Pin Bar Characteristics

  • Wick must be 3 times as big as the body
  • Wick must be larger than the previous bars and stick out from the rest
  • Body must be on one end of the wick, not in the middle
  • Price has to close within the previous candles high or low
  • The Smaller the body the better, the bigger the wick the better

In the chart below you can see a great example of a pin bar. The wick is 3 times as big as the body, it sticks out from recent candles and it closes within the previous candles low. The body is small and it closes on the end of the wick. Overall this is a very good-looking pin bar.

Pin Bar Pattern

Now some pin bars are going to be better than others, this all depends on its characteristics. For example if the body closes closer to the middle than the end of the wick then it isn’t going to be as effective of a pin bar as it would have been if it would have closes at the end of the wick.

So it is important when looking for pin bars that they have all of the characteristics that were named above if you want the most effective and profitable trade you can get.

How To Trade a Pin Bar

Before you even think about making a pin bar trade you need to make sure it fits the characteristics of a pin bar that were stated above. That is the first thing you should do when you think you see a pin bar has formed. Once a pin bar has been confirmed you can begin to look at the other parts the trade needs to be taken.

The next thing that should be looked at before a trade is whether or not the market is trending or is ranging. Knowing this will better help you understand what the market is doing and will help you accurately read the market. A pin bar that has formed with the trend are the most effective trades but you can also look for trend reversals and pin bars in a ranging market. Trading against the trend and in a  ranging market is going to trickier but can also pay off big time.

This chart is a downtrend and a pin bar forms rejecting higher prices and this indicates it is ready to continue its trend downward.

Pin Bar With Trend

On this chart below we can see that a pin bar formed after a major downtrend. The market then reversed and shot up. This is the power of a pin bar.

Pin Bar Against Trend

With the chart below the light blue rectangle represents the trading range. Trading when the market is ranging is very risky but can also be very profitable. As you can see just on this chart there was one pin bar that didn’t work out and one that did. The one that did it formed at the bottom of the range and the price went all the way to the top of the trading range.

Pin Bar in Ranging Market

Support and resistance zones are also key when trading pin bars. The reason for that is because at these zone is where we look for pin bars to form. These zones are excellent areas for the price to reverse because in the past the prices have respected that zone.

Wait for price to get near a support and resistance zone then look for a pin bar formation. By trading with support and resistance you are greatly enhancing your chances for a successful trade because you are reading what the market is giving you.

When prices move up to a resistance zone you will be looking for a bearish pin bar. This is your signal to enter the trade short.

With the chart below you can see that price moved up to the resistance zone and formed a pin bar. The wick went through the resistance zone which shows that the market rejected the higher prices. Then the market reversed into a downtrend.

Bearish Pin Bar at Resistance Zone

When prices move down to a support zone you will be looking for a bullish pin bar formation for you to go long.

In the chart below you can see that a pin bar formed with a huge wick which penetrated the support zone. This is very good sign and shows that the market has run out of steam and is ready to reverse trends just as this one did.

Bullish Pin Bar at Support Zone

The best time to enter a pin bar trade is when you have the trend in your favor and it has formed right on a support or resistance zone. This is called trading with confluence.

Trading with confluence is the most important thing when it comes to having highly successful trades. It means that you have at least two things in your favor. We can use in trading because we can often have more than two reasons to enter a trade. Those reasons could be with trend, at support or resistance zone or a trade setup.

When you are able to get all three of those things in your favor you can expect a much higher win percentage on your trades.

This is a great example of a trade that has everything working for it. A bullish pin bar has formed at a support and resistance zone and the market is in a uptrend. All three are working in your favor which makes for a very high probability trade setup.

Pin Bar With Confluence

Entry and Stop Loss Placement

The entry point and the stop-loss placement are very important to figure out before you make any trade. This way you know your risk that you are taking and know where your trade will be entered.

The entry point is very simple to find for a pin bar setup because you place it right below the low of a bearish pin bar and right above a bullish one. The best way to do this is setup a sell or buy stop order. What that means is that once the price gets to a certain level your trade will be triggered and you will be in the trade. This provides the most accuracy when trading.

Simple diagram of where to place your sell and buy stop orders for a pin bar trade.

Pin Bar Entry

The stop-loss is also very simple to find for a pin bar trade. You place the stop-loss right above or below the wick of the candle. Placing the stop-loss here will give the trade space to work itself out and hopefully move in the direction you had hoped.

Another really easy to follow diagram of where to place your stop losses when trading a pin bar.

Pin Bar Stop Loss Placement

Conclusion

In conclusion the pin bar is a very valuable tool when it comes to trading price action and Forex in general. It is a trade setup that has proven over and over again to be a reliable signal to trade. If you take your time and learn the ins and outs of a pin bar it is really the only trade setup you need to be a successful and profitable trader. Remember that not all pin bar setups are created equally and some will be more likely to workout then others. By trading with confluence such as support and resistance zones and with the trend you will greatly increase your chances of a successful trade. Now go test this signal out on a demo account until you are comfortable enough with it to trade live.

I hope that you have learned a lot in this lesson and especially about the pin bar trade setup. If you have any questions you can leave a comment below. Also remember to sign up for our newsletter below where you will receive free ebooks, get trade setups sent to you, free tips and guides. Plus you will receive information that wont be on the website.

Comments

  1. Ferry Donald says:

    A very valuable and practical Price Action article explaining “trading with confluence” concept . Keep up the good work.

  2. Is everything ok, have missed your work.

  3. Arif Ahmed says:

    Looking good, but it can’t work when I go to live trading. I can’t understand what’s the problem with these free things.

  4. Perfect strategy, I’m doing joist price action in pin bar. Don’t you think we can apply it in bothe H4 and daily frames?
    .

    • Trading With Price Action says:

      Yes of course you can apply to both the daily and 4H charts. Pin bars will be a great trade setup on any time.

  5. Very good lesson for me it is very good.
    Thank you very much !

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