A pin bar is a very common trading pattern that is used by most traders. The model is incredibly strong, and with the proper skill gives super-profitable signals to enter the transaction. Nevertheless, if you treat the PIN-bars formally without taking into account additional factors, then such a strategy will not yield a particular profit. In the current material, I have prepared for you extremely valuable information on how to trade pin bars, why they appear on the chart and what is meant.
The essence of the pattern is Pin-bar
I have been using pin-bars for a long time in my trade, and I also teach them how to use novice traders. The key problem is the lack of understanding of the precise definition and essence of the model. Therefore, first of all, we'll figure out exactly what a pin bar is, and how it looks on the chart. For clarity, I immediately present to you a schematic image of the pattern.
Schematic model of a pin bar for a downtrend.
Thus, the pin bar is a graphic model with the following features:
• long tail of the candle (minimum 2 times the length of the body);
• short body of a candle;
• the location of the body at the bottom (for a downward turn) or at the top of the candle (for a turn up).
What does the pin bar mean:
1. in the market there is an active struggle between buyers and sellers;
2. in the current candle (pin bar), the active struggle was won by buyers, if the candle is bullish, or sellers, if the candle is bearish;
3. a large player or a market maker using a pin bar collects the stop orders of small traders.
As a rule, the appearance on the graph of an explicit pin bar occurs after a surge in volumes, as can be seen from the following example.
The EURUSD chart from 11.07.2018, the appearance of a pin bar on the 15-minute timeframe, a strong culmination of volume.
As you can see, there are a lot of details related to the appearance of the pin bar, and the context is very important in the market. The simple appearance of a candle that looks like a pin bar does not give a trader anything. It is necessary that several factors coincide:
• a surge in volume;
• a clear pin-bar model;
• extreme values of the price (the price should make a sharp move down or up, and not be in the corridor).
If the above factors do not coincide, then the model is considered false, as a consequence, the probability of a profitable transaction becomes negligible.
Situations where you can not trade pin-bars, and beginners' mistakes:
1. entering the transaction in the direction of the traffic (the pin bar is precisely the reversal model);
2. entrance immediately after the pin bar blindly without a confirmatory candle;
3. A desperate attempt to trade pin-bars when the price is in the corridor;
4. use too small timeframes (1 minute and less).
Here is a picture that appears before the eyes of a beginner who has not yet fully learned how to use pin-bars.
The movement was directed upwards, so it was necessary to enter the turn-down. In addition, after the pin bar, the price immediately went in the wrong direction, there is no confirmation.
CFD trading strategy for pin bars
After it became clear what a pin bar is, it's time to pay attention to trading strategies. I have long known that it is important not only to understand the model, but also its application in certain conditions. Here is my main strategy for trading this pattern:
• timeframe - M15 and higher (if you take less, then many false signals, but the profit will still be);
• tools - any CFD-contracts;
• transaction risk - maximum 2%;
• entry into the position is mandatory after the appearance of the pin bar and the closing of the confirmatory candle in the desired direction (for more details, see the example);
• additional conditions - finding the price between 50% and 78% by Fibonacci, the absence of important news during the period of the transaction;
• a stop order - on the 1-2 point above the tail of the pin bar;
• optimal take-profit - minimum 4 times the stop order.
I'm enclosing an example of a deal below.
The situation for the CFD on Apple shares from 21 on 25 June 2018. Buyers were exhausted near the level of 78% Fibonacci, which was confirmed by the formation of the pin bar, and then the bear candle. In addition, there is a clear surge in the volume of transactions. Take-profit within the local bottom in relation to the stop-order 1 to 4.
In general, for such a strategy, you can have about 65% of transactions in plus, if experience is enough. For the ratio of 1 to 4, this is an excellent result. Beginners can well rely on 45-50% of transactions due to errors and lack of proper skills, which will also allow them to receive a decent profit.