The Complete Guide to Trading Pin Bars (updated April 2018)

Pin Bars – What are you talking about?

Pin bar definition – Candles with a very long wick in one direction, a very short body, and, typically, a very short wick in the other direction, hence the name Pinocchio bars. 

For those of you who are unfamiliar with the 1883 children’s novel “The Adventures of Pinocchio” (and subsequent Disney film), he was a puppet, turned into a little boy, whose nose got longer when he lied. And he lied a lot. To enlarge the analogy, the Pin Bar lied to you for most of its life. It looked to all the world like it was pushing up (or down) long and hard, but then pulled back and closed near the open. It was what we call a “head fake”–a reversal in disguise. It was a trick to get you to go in one direction, when the intent was to reverse.

Pin bars

Where can I find Pin Bars?

Pin bars can be found on all trading instruments in all time frames. They can be found in the context of a trend – which typically signals continuation – or at the top or bottom of a trend run signaling a reversal. Obviously, identifying trend continuation or reversal in advance is the key to profiting with pin bars.

What does a Pin Bar look like?

Typically, a Pin Bar will stick out from price action, with the pin wick at least two times the length of the candle body. You can usually identify the context by looking at prior price action near the price of the pin bar. If the pin bar pushes higher or lower than the recent price action or there is no recent price action, it is most likely a reversal – a real pin bar.

pin-bar-2This is what is actually known as a Pin Bar. A true Pin Bar signals a trend reversal – or at least a very strong retracement. If the pin bar doesn’t push past recent price action – if there is recent price action, you can probably expect the trend to continue after the pin bar. This is what we call a fake Pin Bar because it doesn’t signify a reversal.

trading pin bars

What does a Pin Bar represent?

A Pin Bar identifies price rejection. Imagine the bar when the top (or bottom) of the body was where the end of the long wick is now. As mentioned, at that point it looks for all the world like it was going to continue on and on. But suddenly the candle pulls back hard from a certain point. That indicates there were a LOT of orders right there pushing price action in the opposite direction. A preponderance of traders (or a few very large traders) has decided that this was where they would make a stand. They each decided that this is a point at which a lot of other traders are going to reverse the price. This holds true whether the Pin Bar is a real reversal or a fake. There was still a significant number of orders pushing price in the opposite direction.

The difference, of course, is how many traders (or, more specifically, how much size) is behind this move. In the context of a trend, the pin bar only serves to clean out all (or most) of the orders causing the price action to reverse. Identifying this in real time, as it’s happening, is necessary to profit on Pin Bar price action.

trading pin barsAs mentioned, the key to identifying the difference in real time, is the price at which the pin bar occurs. To be a real reversal, a Pin Bar must occur at a prior significant support or resistance level. So, the key is to “look left” at prior price action. If the Pin Bar is pushing through a prior support or resistance level, the probability is high that the Pin Bar will result in a reversal, or at least a significant retracement of the prior price action.

Combinations of Pin Bars

Pin Bars, in combination with other candle formations, are powerful trade signals. Each of these patterns increase the probability of a reversal occurring at these locations – as long as the pin bar has occurred at a significant level. Here is an example of a Pin bar followed by an inside Pin Bar, then followed by a regular inside bar. This is a strong reversal signal if there is no recent price action or it is pushing through a prior key resistance level.

trading pin bars

In fact, just a Pin Bar followed by an inside Pin Bar or a Pin Bar followed by a regular inside bar are powerful signals in themselves.

Here is an example of double Pin Bars or what is sometimes called a Tweezer Top. This pin bar candlestick pattern by itself is a very powerful reversal signal (price was rejected twice at the same level), but since it’s also followed by an Inside Pin Bar this is that much more powerful. Notice that each Pin Bar stopped short of the prior Pin Bar (making lower highs.) This suggests that the buy orders for continuation of this trend are being swallowed up by the sell orders placed by the traders that are expecting a reversal – suggesting an imminent reversal.

Trading Pin Bars

How do I profit with Pin Bars?

If you’re a beginner trading Pin Bars, I recommend you trade only on a demo or a paper-trading platform until you get the feel for Pin Bars. Picking out Pin Bars in real time takes practice, upon which you will not want to expend real money. The emotions of trading with real money can cloud your learning and observation of any new strategy. Using a simulated platform can allow you to get the “muscle memory” of the strategy without the distraction of the emotions. Once you understand the strategy, you won’t have to worry about those details while you battle the emotions of trading with real money.

Also, I highly recommend you initially stick to the higher time frames (Daily, 4 Hour) to look for your signals. As with most any trade signal, the higher the time frame on which a signal occurs, the more significant is the signal.

**Plus, the higher time frames will allow you the time to completely analyze the pin bar signal without the pressure of “getting into the trade before it gets away from you.” When you’re comfortable with the steps in analyzing a pin bar signal, you will be able to handle the lower time frames much more easily.

Three Trade Entry Opportunities with Pin Bars

Once you’ve determined that you have a pin bar that has pushed a little bit through a key resistance level, the bar will give you three trading strategy opportunities.

  1. You can enter on the close of the pin bar candle. This will allow you to trade with a smaller stop loss, but with a reduced probability of success.
  2. You can enter when price breaks the closed pin bar candle. You will be using a larger stop loss, but this gives you direction confirmation for a slightly larger probability of success than strategy 1.
  3. You can enter before the pin bar closes as it retraces to about the 50% level. This will allow you the smallest stop loss, but the lowest probability of success (Learn more about the exponential affect of timing and Risk to Reward)

pin bars 7

The downside of strategy 3 would be that there is no actual, confirmed pin bar before you enter your position with the upside being a potentially huge Risk/Reward. Strategy 1 is the hybrid between 2 and 3 as it allows you the smaller stop loss and also has the potential for a favorable Risk/Reward.

Which of the methods you decide to use all depend on how comfortable you are with Pin Bars after practice and what other strategy components you are using to build your trading approach. All of these methods can work within the right system and be an advantage to your overall approach (just don’t plan on getting rich by trading pin bars by themselves).

How Do I Manage A Pin Bar Strategy Trade?

Whichever entry strategy you choose, typically you would place your stop loss a few pips above/below the pin bar (typically referred to as the “technical stop loss”). Another way is to find another key support/resistance level at an appropriate price to protect your stop loss.

I always prefer to find a key level in the market to protect my investment and in this case we would place our stop loss behind the support/resistance so that support/resistance would have to be overcome before our stop is hit. As you can see in several of the images above, you can still have a successful trade even if subsequent candles actually push beyond your pin bar, so don’t be too stingy with your stop loss.If your stop loss is taken out with another pin bar, often it is just shaking you out for an even bigger move. In these situations, I recommend this trick to help you protect profits.

Be sure to give the trade as much opportunity to swing as you can stand. If you end up with a second (or even a third) pin bar, that just confirms the price rejection and increases the probability that price will move in the direction of your position.

Be sure you maintain your risk parameters when you size your trade. Your most important job is to protect your trading account. Blowing your account on one potential trade is never worth it 😉

Open Trade

There are many ways to manage your open trade. You can find a key support or resistance level at a good price in the direction of your trade that will allow you to set up your take profit. The fewer support/resistance levels that your trade has to break through before hitting your target, the better chance you will hit the target early and not have to wait through bounces and swings. If price does bounce and makes a pin bar in the opposite direction, take your profit and move on. Never worry about “leaving money on the table”, you don’t have a crystal ball and you will unnecessarily stress yourself out over it. The trade is done, so move on to another opportunity. There will ALWAYS be another trade, so don’t worry about something you may or may not have missed.

Split Trade

That having been said, you can always split your trade into multiple positions, take profit at your target on one of your positions and use your second piece to carefully stalk price action using Support and Resistance levels as “steps” up or down toward your ultimate target (or have no hard target and just see how long the staircase can go).

Your pin bar trade can have a fairly small stop loss and therefore allow you to trade larger size than many other trading strategies.  Also, your target can likely be two or three times the size of your stop loss, so you can lose two for every one you win and you will still make profit–the better you get at timing, the more you can maximize your Risk to Reward!

Be Consistent!

Always remember that one or two, or even more, losing trades don’t tell the whole story (in fact, they probably do not tell one page of the story given the literal trillions of opportunities within the markets). Many traders try a new strategy for a few times and if they take a loss or two, they decide it’s not a good strategy and look for another one – only to repeat the process over and over without ever being a profitable trader. Consistency is what makes a good trader along with practice and discipline. Make one small tweak at a time, don’t throw the strategy out because you had a bad run.

If you can be consistent with your approach and combine key price action like we talked about in this article with other methods, you will be able to steadily improve your trading until you begin to see the results you want. It won’t happen overnight, but I hope this guide to using Pin Bars is a valuable asset to getting you on your way!

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