Pin bar candlestick pattern and trend line trading are among the most popular and well-known
price action patterns.
And, while the pin bar setup may be as popular as ever, many traders still have trouble trading
the pattern profitably.
In todays video, I want to clear up some of this incorrect information regarding pin
bars and trend lines, by giving you a simple Forex strategy that will change how you trade
A pin bar (or hammer candlestick) is a price action pattern which is supposed to signal
a reversal that may be about to take place in the market.
Heres an example of a bearish pin bar.
Notice how the body of the candle is found at the bottom of the candlestick and the long
wick is found at the top.
All bearish pin bars youll see form in the market will follow this basic structure.
Theyll all have their body at the bottom candlestick and their wick at the top.
Sometimes the body of the candle will not be found right at the bottom, like you see
in this example, but it will always be found in the bottom half of the candlestick.
Here we a bullish pin bar.
The body of the bullish pin bar is found at the top of the candle, and most of the wick
is found at the bottom.
Even the body of the bullish pin bar does not manage to close right at the top of the
candle, this doesnt make any difference, its still a bullish pin bar and should
be treated the same as all other bullish pin bars you see form in the market.
One main way to trade pin bars is at levels of support and resistance found in the market,
namely trend lines.
Trend lines are one of the cornerstones of technical analysis, and are used mainly to
identify and analyze a trend.
Trend lines on down movements are always drawn above the candlesticks and they require two
swing highs in order to be placed.
Trend lines on up movements are always drawn below the candlesticks and they require two
swing lows in order to be placed.
For a trend line to be considered invalid or broken the market must have managed to
close above or below it with multiple candlesticks.
Now, why pin bars at trend lines are high probability setups.
Well, for 2 reasons.
There a rare setup, its not everyday youll see a pin bar at a trend line.
A pin bar at a trend line shows an important event is taking place, which is going to make
a lot of traders lose money.
Looking at this example we can see a trend line drawn from the swing lows of an up move
in the market.
The market hit this trend line several times, and here when the market returns, it produces
a bullish pin bar.
Now lets consider the psychology of the traders who sold during the creation of the
They all sold because they believed the market was about to break lower.
They have used the same trend-line, but their method of using it was to identify a change
So when they saw the market dropped below the trend line, they classified this pattern
as a possible trend change, which caused them to place sell trades.
The bullish pin would have looked like the bearish candle when the price was below the
And when the market begins to move up above the trendline (which creates the wick on the
pin), the traders who sold are now being put under intense pressure to close their trades,
which will result in increased pressure to the upside.
So why this strategy works?
Because we are trading pin bars in the direction of the main trend.
The appearance of a pin bar is supposed to signal a reversal in the market but as you
have probably noticed on many occasions, the price will not reverse and will continue moving
in the dominant direction of the trend.
People who trade pin bars rarely trade them in the direction of the most recent high/low
because they have been taught pin bars are supposed to cause a reversal.
For example when price action traders see the price moving higher theyll place sell
trades whenever they see a bearish pin bar but neglect to place a buy trade when the
see a bullish pin bar.
Thats why its not a wise idea to trade every pin bar you spot on your charts, and
especially the ones that go against the trend.
If you didnt already know, there are different types of pin bars which appear in the market.
When I say types I dont mean one pin bar has a bigger wick than the other, I mean the
CAUSES behind why a pin bar forms in the market can be different depending on WHERE the pin
bar is found.
Pin bars are typically reversal candlesticks.
Now, very important.
The only time a pin bar will cause a reversal is when the big market players, namely banks,
take a significant amount of profits off their existing trades or when theyre placing
trades in order to make the market reverse.
And in the second scenario, these pins are formed with the trend and act as continuation
So the first step to trading pin bars, is to determine which direction the market is
And for this, you use trendlines.
You need to look to see if the most recent swing low thats formed in the market is
lower than the previous swing low, or if the most recent swing high is higher than the
previous swing high.
If the low is lower it means the trend is currently down and if the high is higher it
means the trend is up.
In this example, we have an up trendline.
Seeing a bullish pin bar form when the market reaches the trendline, would be a strong signal,
which means another swing higher is possibly about to begin, so getting a buy trade placed
when the pin has formed, gives you the opportunity to possibly get into a high probability trade.
Also make sure you have a stop loss placed with every trade.
When trading bullish pin bars you always need to put your stop loss a few pips below the
low of the pin.
As for taking profit, I aim for at least 2:1 risk reward ratio.
If you risk 30 pips, aim for 60 pips profit.
For bearish pin bars it would be the other way around.
If the market was trending lower, you would start watching for bearish pin bars to form
after a retracement has taken place and the market is back at the trendline.
If a bearish pin forms at the source of the retracement, its a sign the bank traders
have got more sell trades placed, and that new swing down is now likely to develop.
With bearish pin bars your stop loss always needs to be placed just above the high of
And here is an important tip: make sure the body of the pin bar closes into the body of
the previous candlestick.
Heres an example of a bearish pin bar which had its body close into the body of the bullish
candlestick that formed before.
You can clearly see the entire body of the bearish pin bar is contained completely within
the body of this bullish candlestick.
Heres an example of a bearish pin bar which didnt have its body close into the body
of the previous candlestick.
You can see the body of this pin bar closes into the wick of the previous candle, not
the body like we saw in the previous example.
The pin bars which have their body close into the body of the previous candlestick have
a slightly better chance of working out successfully than the pin bars which have their body close
into the wick of the previous candlestick.
The reason why is because when the pin bar body has closed into the body of the previous
candle, its a sign the momentum in the market has shifted and the price is about
to move in the direction the pin bar is suggesting.
Another tip for trading this strategy, is to only trade the pin bars which form during
the time a currency is actively traded, so dont take trades on any of the pins which
form during inactive market hours.
For example, the pound - dollar is traded the most between the time the London trading
session begins and when the US sessions ends.
After that, the volume drops off significantly, because most of the banks which actively trade
have closed by that time, so theres no big orders coming into the market causing
the price to move up and down.
The bullish and bearish pin bars you often see form during low activity periods do not
have a high probability of working out successfully, due to the fact they have not been created
by the bank traders taking some form of action in the market, like placing trades or taking
Typically the pin bars which form during non-active hours, will be a lot smaller than the pin
bars you commonly see form during active market hours.
Heres another example of a bullish pin bar found at a trend line, during London session.
After seeing at least two swing lows form we know this is a confirmed trend line, at
this point we would be waiting for a pin bar to form.
When it does we follow the same process of placing the trade as we would do for trading
pin bars at support and resistance.
The entry is at the time period you trade, for example if you trade the one hour chart,
you wait until the end of the hour before placing the trade.
The stop-loss goes below the low of the bullish pin setup.
You could also lower your risk on the trade when the market makes a higher swing high.
In this this case you move you stop loss below the most recent swing.
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Until next time.