In trading world, mastering and understanding of candlestick patterns is crucial for profitability. Among the various patterns that traders depend on, the pin bar candle stick patterns stand out as a most powerful tool for making better trading decisions. Irrespective of the fact that you are a novice trader or expert trader, learning to identify and implement pin bar patterns can enhance your trading skills. These candlestick patterns have distinctive shape and attribute that provide value able insight regarding market sentiments and possible price reversal.
In this article, we will go deep into the pin bar candle stick patterns. We will study their unique anatomy, identification methods and their trading strategies. At the end of this article, you will have the skills and knowledge to unlock the potential of pin bars to join the profitable forex traders. This will take your trading game to a new level. So, let’s start discovering the key to successful trading with the help of pin bar candle stick patterns.
Understanding the Anatomy of a Pin Bar
It is essential to understand the anatomy of pin bar to effective trade with it. As far as its shape is concerned, a pin bar candle stick consists of a small body and a long wick or tail. A candle stick will only consider as pin bar if the tail is two to three times longer than body. The body represent the opening and closing prices. While the wick is representing the low and high of the price. This is named as pin bar due to its unique shape which resembles to pin.
The pin bar pattern can be either bullish or bearish. It depends on its location in the price chart. A bullish pin indicates a possible price reversal from bear market to bull market. It normally appears at the end of the bear market. It has long lower wick and small or no upper wick and a small body. It indicates that buyers have accepted the market prices and bring the price higher.
On the other hand, a bearish pin bar appears at the end of the bull market. It has long upper wick and small or no lower wick and a small body. It indicates that bulls are losing control and cannot drive the prices higher. The bears are now in control who brought the prices lower.
Understanding and identification of these two attributes are crucial for identification of pin bar patterns and unlock potential trading opportunity in the right direction.
Types of Pin Bar Candle Stick Patterns
Although the basic anatomy of pin bar candle remains same, there are many variations that you should be aware of. These variations or types provide additional information regarding market sentiments and help in identification of possible market reversal. Below are the most common forms of pin bar candle stick patterns.
1. Bullish Rejection Pin Bar candle stick
This kind of pin bar usually forms at the end of the downtrend. It indicates that there is a potential reversal in the market towards uptrend. It consists of long lower wick, small body and very short or no upper wick. It indicates that buyers are gaining control of the market and has rejected the lower prices.
2. Bearish Rejection Pin Bar candle stick
The pin bar forms at the end of the uptrend. It has long lower wick, small body and no or very small upper shadow. It indicates that sellers have rejected higher prices and brought the prices lower. It represents that bears are now gaining control of the market and there is a possible price reversal towards downside.
3. Bullish Hammer Pin Bar candle stick
As the name indicates, it looks like hammer, consisting of long lower wick and small body and no upper wick. It appears at the end of the downtrend. It also represents end of the downtrend and a possible price reversal.
4. Bearish Shooting Star Pin Bar candle stick
It forms at the end of the uptrend and indicate a possible market reversal toward downside. It consists of very small body and a long upper wick thus resembling a shooting star. It also indicates that sellers are rejecting the higher prices are now gaining control which can move the market downward.
Identification and understanding these different kinds of pin bars is essential to rightly interpreting their implementation for taking the right trading decisions.
How to Spot Pin Bar candle stick Patterns on Price Charts
Identification of pin bar patterns on price charts is a basic and must-learned skill for traders. There are many strategies and techniques that can help to sport the pin bar pattern on price chart easily. Below are some of the steps for their identification.
1. Identify the Prevailing Trend
It is essential to determine the direction of the prevailing trend before looking for pin bar. The prevailing trend will help you to predict the kind of pin bar that can appear. If it is the uptrend then look for bearish rejection pin bar of shooting star pin bar. If the prevailing trend is downtrend, then look for bullish rejection pin bar or bullish hammer pin bar.
Another important thing to look for support and resistance levels. Pin bar candle stick patterns are more affective if they appear at significant support or resistance level.
2. Look for Long Wick
Scan the price chart and look for candles which have long wick. The pin bar candle sticks are characterized by long wicks. If you find any candlestick that has long wick and small body, it may be a pin bar candle.
3. Evaluate the Body Size
After scanning the price chart and identifying the long wick candles, look for those candles which have small body. A small body is another characteristic of pin bar which indicate an indecision between buyer and seller.
4. Confirm the Pattern
Once you identified the pin bar, the next step is to confirm its validity. Look for support and resistance levels, surrounding price actions, volume analysis, and other technical indicators that can complement the price reversal behavior.
Before going into real market and wait for the pin bar, try to identify it on historical data to develop your skill and understanding. So that, when it appears in the price chart, you will be able to trade it efficiently.
The Psychology behind Pin Bar candle stick Patterns
To interpret the implication of pin bar patterns, it is essential to look for psychology behind it. Pin bars indicate a battel between bulls and bears. The long wick indicates the price rejection at certain level. It also indicates that the opposite group has come into play and pushing the price in the opposite direction.
In case of bullish pin bar, the longer wick of pin bar candle suggests that the buyers have rejected the lower prices and stepped in to move the price in the upward direction. This rejection indicates a possible reversal in price movement. On the other hand, in bearish pin bar, the long wick indicates that bears have rejected the higher price and moved the price down. It indicates a possible reversal of price movement in the downward direction.
The psychology behind the pin bar patterns is rooted in the concepts of support and resistance levels. Those pin bars are more affect which took place at significant support and resistance levels. To efficiently trade the pin bar, use it with the combination of support and resistance level. The understanding of both, support and resistance levels, and pin bar patterns is essential to trade it in combo.
Trading Strategies Using Pin Bar Candle Stick Patterns
So far, we have covered the anatomy and identification of pin bar patterns. Now, let’s explore some of the most effective trading strategies that can be utilized by using these patterns. These strategies will help you to improve your overall trading performance and take advantages of possible price reversal. Let’s go deep into these strategies.
1. Pin Bar as a Reversal Signal
The formation of pin bar at resistance and supports level plays a significant role in price reversal. Whenever, pin bar is formed at clear support or resistance level, traders can take the position that is opposite of the prevailing trend. Through this way, they can enter the trade at a very early stage and can ride the trend longer.
2. Pin Bar as Continuation Signal
Pin bar not only determine the price reversal but, in some cases, it also provide insights for trend continuation. For example, when a bullish pin bar forms in the uptrend, it indicates a possible trend continuation. At such formations, traders can enter the trader in the direction of the prevailing trend.
3. Pin Bar with Confluence
The better way to use the pin bars is to combine it with other technical indicators or chart patterns. In this way an additional verification can be taken regarding trend continuation or trend reversal. It will increase the probability of profitable traders. So, look for other technical indicators that are aligned with pin bars to take your trading decisions.
It is worth mentioning here that whatever strategy or indicators you apply in your trading, it is important to consider risk management strategies for profitable trades. Always trade with proper stop-loss order and keep your position size small. Always use pin bars in conjunction with other technical indicators. You should not enter the trade on the basis of Pin bar patterns alone.
Risk Management when Trading Pin Bar candle stick Patterns
Irrespective of the type of trading strategy, risk management is an important aspect in trading. It is crucial to manage your risk although pin bar patterns provide valuable insights and profitable trading opportunities. The proper risk management help you to protect your capital from major draw down. Below are some risk management principles that you should keep in mind while trading with pin bar patterns.
1. Set appropriate stop-loss orders
Setting an appropriate stop loss order is one of the most important elements in risk management. Before entering a trade, define, when or where you will exit the trade if it does not go in your favor. Placing a stop-loss order above the high of bearish pin bar and below the low of bullish pin bar are the appropriate points. These stop-loss order can help you limit your potential losses.
2. Calculate Position Sizes
The position size defines that how much capital you are willing to risk on a single trade. Normally traders do not risk more than 2% of their trading capital on a single trade. Through this way, no single trade can affect your trading capital to a considerable level.
3. Use Proper Leverage
Be careful of the risk involved if you are trading with leverage. Higher the leverage means higher is the risk that can turn into greater profits or losses. So, decide your risk tolerance level and use the leverage accordingly.
4. Monitor trade outcomes
Always have a journal that keep records of your trading transactions. Monitor your trading performance on a regular basis. See the effectiveness of your trading based on pin bar patterns and your trading strategies. This will help you to identify your areas of improvement and you can fine-tune your trading strategies with the passage of time.
With the help of these risk management principles, you can limit your potential losses and protect your capital while trading with pin bar patterns.
Back testing and Analyzing Pin Bar Patterns
It is better to back test any trading strategy, technical indicator or price pattern before going into real market. You can back test the pin bar pattern with the help of historical data and future test the pin bar patterns with the help of demo accounts. Different brokers and trading platforms provide the facility of both the historical data and demo account. The back testing and forward testing will help you to check the profitability and reliability of your trading strategies along with pin bar patters. Below are the steps to follow when go for back testing of Pin bar patterns.
1. Define your Trading Rules
You are required to define the areas where you can enter the trade and exit the trades when trading with pin bar patterns. Consider the elements of support and resistance level, type of pin bar pattern, and other technical indicators that can be used on conjunction with pin bar patterns.
2. Select a Sample Period
Select a specific time span for historical data on which you will run the back test for pin bar patterns. Make sure that the time spam is sufficient enough t have the different market conditions and a number of pin bar patterns.
3. Apply your Trading Rules
After defining your trading rules and selecting the appropriate time spam, now it is the time to implement the trading rules on historical data. Write down the performance of these trading rules and pin bar patterns over a period of time. It is better to note down the outcomes of each trade including entry and exit points, profit or loss statement. This will help you to get your win rate based on pin bar trading patterns.
4. Analyze the Results
The last step in back testing is analyzing the performance of the trading strategies and pin bar patterns. Identify your key performance indicators such as win ratio, average profit or loss per trade, maximum drawdowns and analyze your trading performance on these indicators. Identify any areas that need improvement and enhance your trading strategy accordingly.
Back testing allows you to refine your trading strategies without any risk. It also shows the effectiveness of your trading strategies and give you the confidence to trade in the real market.
Common Mistakes to Avoid when Trading Pin Bar Patterns
Pin bar patterns are one of the most powerful tools for trading. But even than trader make some mistakes while trading with pin bar patterns. Below are some of the mistakes to look after:
You are not supposed to trade every pin bar that you see on the price chart. Trade only those pin bar which are enforced by other technical indicators or price patterns. Trade only high-quality patterns that align with your trading strategy.
2. Ignoring the Prevailing Trend
Pin bar patterns are most useful when they happen within the context of prevailing trends. If you ignore the prevailing trends, you may get caught in wrong signal and hence losing the trades.
3. Neglecting Confirmation signals
Pin bar patterns should be traded in conjunctions with other technical indicators or price patterns. Do not rely solely on pin bar and confirm the price continuation or price reversal with the help of other technical indicators as well.
4. Emotional Trading
Do not allow your emotions to make your trading decisions. Otherwise, these can cloud your judgement that leads to impulsive decisions. Make your trading decisions on the basis of logic not emotion and follow your pre-defined trading rules religiously.
5. Lack of Proper Risk Management
Few traders fail to implement the risk management strategies that lead to losses in trades. Always set your stop-loss order, properly evaluate risk to reward ratio and set your position size correctly. Do not take risk more than of what you can afford to lose.
Understanding of these common mistakes and avoiding them in your trading can enhance your trading profits and increase your chances of success.
Recommended Resources and Tools for Mastering Pin Bar Patterns
Continuously invest on your knowledge and skills to master the pin bar patterns. Below are the few recommended sources that you should look into:
Several books are available in the market that present the chart patterns and briefly describe the pin bar patterns. Couple of these books are “Japanese Candlestick charting Techniques” by Steve Nison and “Encyclopedia of Chart Patterns” by Thomas N. Bulkowski. These books provide valuable insights for chart patterns and technical analysis.
2. Online Courses
Online courses on chart patterns, price action trading, and pin bar patterns are available on Udemy and Coursera. Go for those courses which are designed for chart patterns especially pin bar patterns.
3. Trading Platforms
Use only those trading platforms which provides advanced charting tools and technical indicators. Popular trading platforms include MetaTrader and TradingView.
4. Online Forums and Communities
Different kinds of online forums and communities are also available online. In such communities, traders discuss their ideas and trading strategies. Expert traders in these communities are very welcoming to help the novice traders. You can even ask a question and will find a solution there.
By using these resources, you can enhance your capabilities to trade the pin bar patterns and thus enhance your profitability.
Mastering pin bar candlestick patterns is a valuable skill that can enhance your trading performance. You can have a trading edge in the market if you master the anatomy of pin bar patterns, identification techniques, and trading strategies associated with pin bar patterns. Do not forget to consider the psychology behind the pin bar patterns and risk management techniques. Avoid from common mistakes that other traders make. This will help you stand out in trading world. With dedication, practice, back and forward testing you can unlock the power of pin bar patterns for profitable trading.