The Pin Bar was first introduced by Martin Pring in his book titled ‘Pring on Price Patterns’, as he also co-termed it the “Pinnochio Bar”. A pin bar is basically a reversal trend pattern that is observed when using bar charts. I have a bit of a dislike for using bar charts, although my favorite chart pattern remains the candlestick. It is important to get a fair grasp of both before I proceed onto explain this concept consequently.
In a candlestick a pin bar displays a body that is small and is accompanied with long shadow. On the charts we can spot out two patterns of pin bar formations; the bullish pin bar and a bearish pin bar.
A Bullish Bar is represented by a visible small body that hangs on top with an accompanying lower long shadow, this depicts that price was driven down by the bears and immediately surged back up to close above the open. In an ideal situation, there’s no shadow formation above the body and the close is always above the open for a bullish pattern. The bearish bar pattern exhibits the reverse of a bullish one.
Looking for Pin Bar on the Charts
When looking at the chart for Pin Bar formation, it is necessary for you to lookout for a small body to the bar. At least, go for a wick/shadow that’s thrice the length of the body, its better still when it’s longer. What I mean here is that a wick/shadow that’s say nine times the body length has a greater probability that the one with fewer length.
The placement of a Pin Bar is vital in determining reversal pattern, as the shadow/wick is expected to stick out of the surrounding price action.
Characteristics of the Pin Bar Formation
• The open and close of the pin bar in our chart below are within the price range of ‘bar x’ and ‘bar y’ of the surrounding formation.
• There’s a close proximity between the open and close of the pin bar and it’s even better when they are closer.
• The pin bar also sees the open and close near an end of the bar, with the probability of the price pattern increasing with the open and close being closer.
• The shadow of the pin bar protrudes from within the surrounding price candles/bars, the longer it is the better it is for the price pattern.
The chart below is the eur/usd 1-Hour chart with Pin Bar sandwiched between ‘bar x’ and ‘bar y’. It is a bullish pattern as seen in the chart. There’s no ideal or perfect situation, and this would be detrimental to any trader who’s limiting himself to such ideal patterns (you’ll missing out on a lot of juicy trades). You should be able to use your discretion to pin point tradable and non-tradable
Pin Bar patterns.
Fig. 1.0
Trading the Pin Bar Formation
To be able to effectively trade the Pin Bar formation, it has to be well-defined on the chart. You don’t get the same pin bar formations and as such it is wise to see that they meet the stated criteria.
If a pin bar pattern is formed in agreement with other signals, then it is strong trend. When designing your trading system, a pin bar pattern in consonant with your alert signals can be most accurate.
Care should be taken during range-bound markets, as there are many profitable looking pin bar patterns do not necessarily yield accurate market signals. My years of experience has shown that combining pin bars with support and resistance levels, as well as Fibo retracement level or Moving Averages can yield excellent results.
