Has this ever happened to you? Because if it does, then this post is for you! I don't like to memorize candlestick patterns whatsoever.
Instead, I like to understand what the pattern is telling me, what the market is telling me! And later the bears came in and say, "Uh-uh, that's as high as you're going to go my friend. So what you have over here at this wick is simply price rejection! Rejection of higher prices! Price opens, the bears came in and took charge, pushed price lower.
What you have over here is just rejection of lower prices! You have a bearish pin bar, rejection of higher prices.
So, what a trader will do is they'll go short, and place their stop loss above the high! You're not looking at what the market is trying to tell you!
Video Transcription
You're just simply memorizing patterns and trading as it is! And if you do that, that's a very low probability trade! Because if we look at the chart, the trend is up, it's an uptrend. And when you trade such patterns on the lower timeframe This green box over here is basically the same bearish pin bar you saw earlier. You can see it opened above, and finally closed lower.
Giving you a bearish pin bar. This is the rejection of higher prices! But if you were to take this trade, can you see what you are actually doing? You're actually going short into an area of support on this lower timeframe: You have two things going against you at the moment. You are against the higher timeframe trend, and you're also against the lower timeframe trend. You are basically a counter-trend trader on the higher timeframe and the lower timeframe!
PinBar Price Action pattern
So, what are the odds of this trade actually working out? Just think about this. And again, "Okay, Rayner, I see a bullish pin bar. You put your stop-loss below the low. Possibly maybe placing a buy stop order above the high of the pin bar. As you can see, you're against the trend on the daily chart. What about the lower timeframe? The hourly chart, what does it look like? Price opened, get rejected and finally closed almost at the same level. So you have a rejection of lower prices here!
The Definitive Guide to Trading Pin Bars
But if you look at this chart, does this look bullish to you? In fact, if you draw a trend line : Chances are you're going long into this area of resistance! Again, you're against the higher timeframe, and you're against the lower timeframe. And this is definitely something that I call a very low probability trade! So, what can you do about it?
Well, what I would encourage you to do is to trade with the trend on the higher time frame. So you can't really do much about it! But what you can do to improve your odds is to trade with the trend on the higher time frame! This will greatly increase the odds of this pin bar and engulfing patterns to work out. So I'll share with you a few examples: You can see this is clearly an uptrend. Price coming to an area of previous resistance, now into support. Then you got a rejection of lower prices! Can you see the difference right now?
Between trading the pin bar randomly on the chart? And trading it in the context of the market structure. Another example: Resistance in a downtrend. This is a resistance that you can see. Then you have this pin bar over here, or maybe an engulfing pattern, whatever you call it. Where you are just going long just because it's green, and going short just because it's red.
No, no, no, no. That's not the way, alright? Look at the big picture. There will be failed trades in this example. Again, it's an uptrend, coming to an area of support. This is what I call a bullish engulfing pattern. It's possibly a failed trade because price trade higher before coming down lower once again! So it's not the holy grail. Nothing is Trading is all about probabilities.
It's all a numbers game. I just want you to know that pin bar itself, you don't want to trade it in isolation. You want to trade it in the context of the big picture or the trend. This will greatly increase the odds of your trade working out. And now this is a solution for you But this solution does not come without its own, what I call, drawbacks. Because a lot of the times I see traders just focusing on these pin bars. They look for pin bars in an uptrend and support area, like what I just shared with you.
And here's the thing If you only focus or try to memorize these kinds of patterns in the market, it's not wrong! But what's going to happen is that you're going to miss a lot of trading opportunities. What do I mean by that? Because right now I just shared with you, "Okay, Rayner, I know. I wait for a pin bar to form, I go long and expect higher prices. That is fine. You can wait for that. But if you're just solely waiting for this kind of pin bar patterns. You're going to miss a lot of trading opportunities in the market. Why do I say that? Because, recall earlier, in an earlier example I don't like to memorize candlestick patterns.
I shared with you earlier that a pin bar is just a form of price rejection! That's all that there is to a pin bar or engulfing pattern. They are just showing you price rejection in the markets. Pin bars are not to be traded in isolation , but need to be considered within the larger context of the chart analysis. The benefits of trading with the pin bar candlestick pattern therefore makes it best suited to improve an existing trading strategy.
In order to use the pin bar candlestick patterns, it is best to understand the following:. A pin bar is an individual candlestick pattern and is identified by its long wick and small bodies. Typically, the wicks of the pinbar should be longer than the body.
Forex Pin Bar Trading Strategy | Pin Bar Reversal
The chart below shows some different variations of the pin bar candlestick patterns. Pin bar pattern is characterized by a long upper or lower wick with a small body relative to the size of the wick with little to no lower or upper shadows. Other candlestick patterns that also qualify as a pin bar are hammer and inverted hammer and hanging man type of candlestick patterns. In some cases, a doji candlestick pattern can also qualify for a pin bar candlestick pattern.
The most important thing about the pin bars is that the color of the candle is not considered.
Therefore, a bullish pin bar is identified by long lower wicks and a bearish pin bar is identified by long upper wicks, irrespective of how the body of the candlestick closes. Having said that, pin bars can have more validity when the body of the candle also corresponds to the over bias of the pin bar.
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For example, bullish pin bar with a bullish close is more valid and likewise, a bearish pin bar with a bearish candlestick is more valid. Pin bar pattern are formed when prices are tested and rejected, which is visually depicted by the long wicks the pin bar leaves. While pin bars can form anywhere on the chart, they are considered a strong pattern when pin bars are formed near support and resistance levels.
Pin bars can also be commonly formed near a moving average as well as trend lines. Pin bars are valid across all time frames, but of course, a pin bar on a weekly or daily charts take more precedence than pin bars formed on lower time frames.