The Pin bar or full name Pinocchio Bar, is a bar with a long upper or lower tail, wick or shadow and a much smaller body. The psychology is that it tricks traders that prices are moving higher when in fact they have moved much lower by the end of the session hence the name pin bar.
A pin bar formation features
It should have a long lower or upper tail, also known as the shadow or the wick. The pin wick is at least two times the length of the candle body.
The body is the area between the pin bars’ open and close ends. It is light or colored in white colors when the open is lower than the close and a dark color when the open is higher than the close.
The closer the open and close of the pin bar are the better. It is also better when the open and close are closer to the end of the pin bar.
The tail of the pin bar sticks out from the surrounding price bars hence the longer the tail is, the better the price. The pin bar should be two thirds of the total pin bar length while the rest should be a third of the total pin bar length or less.
Pin bar trading tips
To understand and trade effectively in the pin bar formation, you need to make sure that its definition is accurate since not all pin bar formations are equal. Generally, pin bars taken with the dominant daily chart trend are the most accurate ones available.
The pin bar formation being a reversal setup enables us to have a few different entry possibilities to analyze,
· At market entry
It involves placing a market order that replete immediately after placing it at the best market price. A bullish pin gets a buy market order and a bearish pin a sell market order.
· On stop entry
Means putting a stop entry at the specific level you want to enter the market. The market then needs to move up into your buy stop or down your sell stop to trigger it.
The sell stop order should be under the current market price including the spread while the buy stop order ought to be above the current market price including the spread.
· On a bullish and bearish bar formation
On the bullish pin bar formation, we sell on a break of the high pin bar and set the stop loss 1 pip below the tail of the pin bar. On the other hand, the bearish pin bar formation usually sells on a break of the low of the pin bar and places a stop loss 1 pip above the tail of the pin bar.
· The limit entry
This entry is above the current market price for a sell and below the current market price for a buy.
How to manage a pin bar strategy trade
Whichever entry strategy you prefer, you would typically place the stop loss a few pips above or below the pin bar. Commonly known as, technical stop loss.
Another method is to find another support or a resistance level at an appropriate price to shield the stop loss. Finding a key level in the market to protect an investment can help you to place your stop loss behind the support or resistance so that they would have to overcome the support/resistance before hitting your stop.
It is important to maintain clearly defined risk parameters in place when sizing your trade in order to protect your trading account. For more information on trading account, find out from https://sec.rakuten.com.au/ risking your account on one potential trade is not a wise thing to do and the loss may not be worth the risk.
Pin bars are simply a price pattern that when traded appropriately can supplement other forms of technical analysis to provide a good set up in the forex market. Understanding the pin bar formation will also help you come up and utilize the best Forex price action trading strategies enabling you to make consistent profits.