To be profitable in the fast-moving financial markets, predicting the moves of the market is of extreme importance. The bearish pin bar candlestick is one of the strongest tools that help investors to predict the market reversal. Being a reliable indicator, the bearish pin bar easily and correctly identifies the potential shift in the price movement from bullish to bearish. The bearish candlestick can be identified with the help of its shape as it consists of smaller body, long upper wick usually three times of the size of the body and very small or no lower wick. When seeing on price charts, it gives the warning that the bullish sentiments are going to end and bears are gaining control over the market and the price may soon move in the opposite direction. If traders got skills and knowledge on identifying the bearish candle sticks and how to use them as their trading arsenal then they can have an edge over the market. Here, we are going to share the findings of how to identify the bearish candlestick and how to practically use them in trading. This is helpful for both the experienced trader and the beginners one to accurately predict the market reversal.
Understanding Bearish Pin Bar Candles
Bearish candlesticks are certain types of candles that help in identifying the end of bullish move. Such candles can be identified with long upper wick, short body and small or no lower wick. The long upper wick indicates that bulls tried to bring the price higher but failed in this attempt due to increased selling pressure. The short body depicts that there is indecision in the market due to tough battel between bulls and bears. The short or no lower wick indicates that there is no buying pressure at this price level. When we see it as combined or collective unit, it gives us the strong signal that the market reversal is going to start soon.
How Bearish Pin Bar indicates Market Reversal
Bearish Pin Bar candlesticks is a great source for investors and trader to get the valuable information regarding market sentiments and potential reversal points. As the bearish pin bar candle appears, it gives the signal that bears are gaining strength and bulls are losing control. It indicates that the upward momentum is going to end and the downward price movement may start soon. The long upper wick indicates that the bulls tried to bring the price higher but could not succeed which have changes the market sentiments. The short body indicates that that neither the bulls nor the bears have the market control and the absence of lower wicks indicates the no buying interest at this price level. By utilizing all this information combines, the traders can use it in their favor and can predict the market reversal at an early stage.
Identifying Bearish Pin Bar Candles on Price Chart
To use the bearish pin bar effectively, it is essential to identify it on the price chart correctly. Bearish pin bars are applicable on any time frame either it is one hour, four hour or one day time frame. When analyzing the price charts, look for those candles that have long upper wick, short body and very small or no lower wick. These candles should be clearly visible among the other candles depicting a possible reversal in the market. It is pertinent to mention here that all bearish pin bar candles are not equal and the market is not necessarily reversing from all of these. Some bearish pin bar candles carry more weight or some less. If the bearish candle stick appears at some resistance level, then it carries more weight and there are higher chances that the market will reverse at that level. Use bearish pin bar in conjunction with other technical indicators like, support and resistance level, trend lines, volume, and overall market structure.
Analyzing Bearish Pin Bar Candle Formation
After you have found out the bearish pin bar on price chart, the next step is to analyze the formation of the candle to see its importance. The length of the wick is an important element in deciding the significance of a particular bearish pin bar. The longer the wick, the more important the pin bar will become as it indicates the rejection of the price movement in the upward direction. The 2nd important element to identify the significance is the size of the body as the short body depict the indecision between buyers and sellers. And the last element of importance is the lower wick whose absence will show that the buyers have no interest at this price level. By evaluating all these three elements, the traders can get a significant information for possible market reversal.
Key Characteristics of Bearish Pin Bar Candles
There are many characteristics of bearish pin bar candles that make them a powerful tool to identify the possible market reversal. First, the long upper wick depicts the price rejection at this level that in turn depicts the changes in market dynamics. Second, the short body of the candle depict the indecision between bulls and bears and as no one is clearly in control. Lastly, the short lower wick or the absence of lower wick depicts that the bulls have no buying interest at this price level which support the bearish sentiments.
Bearish pin bar in conjunction with other technical indicators
Although, the bearish pin bar alone is a very powerful tool to predict the market reversal but when it is used with other indicators, its power increases many folds. This indicator can be used in conjunction with support and resistance areas, trend lines, volume and market structure. For example, if a bearish pin bar is appeared at strong resistance area, when the overall market is in the bearish phase, the chances are greater that the market will reverse at that level because two indicators simultaneously give the signal of market reversal, one is resistance area and the 2nd is bearish pin bar. Higher the volume at bearish pin bar also depicts higher chances of reversal. While taking trading decisions based on bearish pin bar, it is better to keep these other indicators in mind as well for better success rate.
Strategies for Trading Bearish Pin Bar candle patterns
Many strategies can be employed when traders trade bearish pin bar. One popular approach is to identify the key support and resistance area and then wait for the bearish pin bar to appear on price chart at strong resistance area to take a short position. You can also set your stop loss at the upper side of the upper wick as this will be the possible swing point and set your profit targets accordingly with proper risk-reward ratio. The bearish pin bar can also be used to exit the long position or readjust their stop loss orders by making them tighter as it indicates that the buying pressure is almost over from the market.
Common Mistakes to Avoid
Although bearish pin bar candles are very powerful and reliable indicator, even though there are some common mistakes that you should avoid to get complete benefits of it.
First, do not solely rely on bearish pin bar alone. Use other technical indicators as well for proper decision making. It is better to use bearish pin bar in conjunction with other technical indicator to verify its impact.
Second, do not take trades only on the basis of bearish pin bar. Wait for the confirmation and the entry signals from other indicators or relevant candle formation before entering into short trade.
Third, always keep the overall market structure in mind. For example, if the bearish pin bar is formed in the strong uptrend, then it may not be as strong indicator as if it is formed in the bearish market.
Fourth, apply risk management techniques before taking any trade. Set the realistic target and set your stop loss with proper risk to reward ratio.
Bearish pin bar is the powerful tool to predict the market reversal and is very reliable as well. By properly identifying its structure and how to use it in trading decisions, traders can get an edge over the market. The key elements of bearish pin bar are the long upper wick, short body and very small or no lower wick. These elements provide the strong sentiments regarding market dynamics and a possible shift in market sentiments. By using the bearish pin bar candles in conjunction with other technical indicators, like support and resistance level, their strength and reliability can be increased many folds. Whenever trade bearish pin bar, keep a strong eye in the overall market direction. These pin bars are better to be used in bearish market and at strong resistance area. By incorporating bearish pin bar into your trading arsenal, traders can enhance their capability to get higher returns from the market and ride a trend over a longer period of time from the very start of the bearish wave.