For traders following the technical analysis school, a Pin bar candle is an extremely important tool. This is one of the Japanese candlestick patterns that provide the strongest reversal signals. Below, Forex Trading will help you learn what the Japanese Pin Bar candlestick is as well as its characteristics and how to trade for the best results!
What is a pin bar candle? Some basic knowledge about the pin bar candle model
Before learning about the characteristics of the pin bar candle model, traders need to clearly understand its concept, structure and meaning.
Concept of Japanese Pin Bar candlestick
Pin Bar is a Japanese candlestick pattern with a quite specific structure. The candle body is small, the candle shadow will be characterized by one very long candle shadow and one very short candle shadow or even none. Its shape is quite special so it is not difficult for traders to identify it.
Meaning of pin bar candle with technical analysis
The Pin Bar is a signal showing the possibility of a price reversal. It has 2 most basic meanings:
- Shows the market trend: The Japanese Pin Bar candlestick gives a strong reversal signal. When candles appear, traders can use them to check if the market is going in the right direction as they predicted.
- Determine entry point: Pin Bar reversal candle will show whether the market is dominated by buyers or sellers. From there, traders can also determine the corresponding buy/sell order entry point.
What are the characteristics of a pin bar candle?
So how do you know if it is a Pin Bar or another type of candle? Through typical characteristics, traders can accurately identify this model on the chart.
Characteristic
- Candle body: The body of the Japanese Pin Bar candlestick is very short and tilted to one side. Sometimes, the candle’s body is so small that it just looks like a straight horizontal line.
- When the Pin Bar signals a bullish reversal: The candle body is green, close to the top of the candle.
- When the Pin Bar signals a bearish reversal: The candle body is red, close to the candle’s tail.
- Candle shadow: Includes both upper and lower shadows, of which one candle shadow is very long, and the other shadow is very short or absent. Normally, the length of the candle shadow will be at least ⅔ of the length of the entire candle.
- Color: Either blue or red.
See more: Read candlestick charts: Basic & advanced material
Classification of Japanese Pin Bar candlestick patterns
Based on whether the Pin Bar gives a bullish or bearish reversal signal, people will divide it into 2 types:
Pin Bar reversed to the upside
Basically, this Pin Bar pattern will also have a standard shape. In case the candle gives a bullish reversal signal, the candle body will lie at the top of the candle and the lower candle shadow will be long.
This pattern shows that sellers are pushing prices down. However, the buying side was stronger, so the price moved up closer to the opening price. After a period of struggle, the sellers are exhausted, the buyers dominate, causing prices to increase and the market will soon reverse from decreasing to increasing.
In this case, traders should avoid confusing the Pin Bar with the inverted hammer candle pattern. Because the inverted hammer is also a pattern for reversal signals from down to up and its shape is quite similar to the Pin Bar.
Japanese Pin Bar candlestick pattern reverses downward
With this Pin Bar pattern, the candle body will be at the bottom and the upper candle shadow will be very long. This model shows that the buyers are pushing the price up but the sellers are stronger so they are pulling the price down. The price was pulled down close to the closing price, the buyers were completely exhausted. The sellers have dominated the market and the price may reverse from increase to decrease.
Instructions on some effective strategies for applying pin bar candle
As mentioned, the pin bar candle provides very strong and reliable reversal signals. Therefore, just by identifying this pattern on the chart and applying it to trading, traders will reap many profits.
There are many ways to trade with Pin Bar. Among them, the following 3 methods are used by most traders.
Use the wedge pattern with the Pin Bar
The wedge model has two cases: a rising wedge and a falling wedge. Depending on each situation, traders will combine with Pin Bar to have a suitable trading method:
- If the wedge rises and the price surpasses the resistance level: When a wedge pattern is identified on the chart, and immediately after a red Pin Bar appears (long upper candle shadow), the market tends to reverse and decrease. At this time, traders should prioritize placing Sell orders.
- If the falling wedge surpasses the support level: The Pin Bar pattern appears immediately afterward with a green candle and a long lower candle shadow, then the trader should enter a Buy order. At this time, the market will show a reversal signal from decreasing to increasing.
In theory, yes, but price action in the wedge pattern is also very difficult to predict. Therefore, you should only apply this method when you are already an expert in the field of Price Action.
Apply each Japanese Pin Bar candlestick pattern individually
The pin bar candle itself gives us very reliable reversal signals. So you can use this model independently. The most effective way to trade is as follows:
- Confirm whether Pin Bar is a bullish candle or a bearish candle. If Pin Bar increases, enter a Buy order. If the Pin Bar decreases, enter a Sell order. The order is placed immediately after the pattern is completed.
- Stop Loss: Place at the highest position with a falling Pin Bar or the lowest position with an increased Pin Bar.
- Take Profit: Place 2 times the position from the Entry point to the Stop Loss point.
Pin bar candle combined with Fibonacci indicator
In every forex transaction, the stop loss point is always an important factor for risk management. However, how to choose the most optimal stop-loss point? You can choose to use the Pin Bar independently. However, there is an even better way, which is to use Fibonacci. This tool was born to help investors find perfect trading points.
Use Pin Bar in combination with Fibonacci in the following way to take a safe position:
- Use Fibonacci to measure the length of the entire Japanese Pin Bar candle. Measure from the highest point to the lowest point of the candle to find the location of the 50% and 61.8% levels.
- The entry point is when the candlestick ends. The stop loss point will be set at the above 2 ratios corresponding to each case of an up or down reversal signal.
This way, traders can limit risk lower than placing stop-loss points at the highest or lowest position of the Pin Bar. This strategy is considered quite suitable for new and inexperienced investors.
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Conclude
In addition to the pin bar candle, traders can also learn more about the hammer candle pattern. This is also a candlestick pattern that gives a fairly reliable and very popular reversal signal. Follow more technical analysis articles from Forex Trading to gain more investment experience. Wishing you success when trading with Pin Bar!
FAQs
Does the Pin Bar pattern appear after an uptrend or downtrend?
Both. If the Pin Bar appears after an uptrend, it signals that the market has a downward trend and vice versa.
Should I wait for the Pin Bar to end and the price to retest before entering an order?
Should not. Traders should enter orders immediately after the pattern ends to be more effective. If you wait for the price to retest, you may lose your opportunity because the signal from the Pin Bar is quite reliable and accurate.
Is a bullish or bearish reversal signal from Pin Bar more accurate?
Whether Pin Bar increases or decreases will provide accurate signals for investors. You should make the best of both cases to find profits.
