What You Need to Know about the Pin Bar

If you have been trading constantly but you do not seem to be making any headway, maybe it is time to rethink your strategies.  You might be better off taking a step back and studying your strategy or trying out a completely new one.

For instance, have you heard of pin bar trading? The pin bar is a trading strategy that holds one of the highest probabilities in Forex trading. Anyone can open an fx trading account and start trading immediately it is set up.

What is Pin Bar Trading?

The Pinnochio Bar or Pin Bar is a single candlestick pattern consisting of a one price bar which represents a sharp rejection and reversal of price. It is also referred to as the pin bar reversal. The pin bar is a long wick which protrudes from the price action.

The pin bar offers one of the most reliable reverse signals if identification and trading is done properly. The term Pinnochio’s bar stems from Pinnochio’s nose which would grow a few inches every time he lied. From observing trading from the pin bar strategy, it would seem as if some lying took place. The price looks like it is going up while in actuality, it is found to be rather low by the end of the session.

When a trader sees a long wick protruding from a price action, they look for the reason for the protrusion and will cause it to continue by looking for a reversal.  When the wick sticks out below the price action, the traders go long. If the protrusion is above the price action, then they will want to go short.

The traders must be careful with the wicks though because some turn out not to be pin bars at all.  However, they can still be used by traders.

How to Differentiate Between a Real Pin Bar and a Fake 

The determinant is really the recent price action. When the long wick juts out from recent prices, that is a pin bar. If it does not protrude from the previous price action, then it is a fake one.  With a real pin bar, traders can open a position which would allow them to take part in the trading due to the opportunity created by the long wick.

With a fake pin bar, that would not work to the traders’ advantage. However, if they recognize it for what it is, they can still trade the faux pin bar.

Trading Fake Pin Bars

To trade faux pin bars, the trader has to decide which of the pin bars are likely to be favorable and which ones to ignore. This is possible if they consider the currency pair and if they only enter in the longer term trend. It is possible to consider the price action analysis as well to examine trends.

Why do Pin Bars Happen?

A long wick means that the market is leaning one direction and that the price was pushed back in a different direction. The price could not work in the initial direction; therefore, it took a different turn. This usually means that a reversal is imminent.

When you consider trading them, you must keep in mind that what you have is a clue. You will be required to look closer to get the real picture. That is the only way you will be able to figure out if the particular pin bar you are looking at is at par with the other price levels displayed on the chart. Therefore, you are aware that pin bars may not be a trading system, but they point you in the right direction.

What you need to understand is that there is really no mystery surrounding pin bars. They are simply figures put down on a chart to give a trader some direction. Should you want to trade pin bars, learn as much as you can about them, run a few tests and see if they will work for you.