Martin Pring, a well-known technician, is attributed with introducing the “Pin Bar” concept in a book he published on pricing patterns a few years back. Pring observed that a series of three bars often accompanied the beginnings and endings of demonstrable trends, thereby suggesting that the three-bar setup was a good indication of an impending reversal. If used in tandem with another indicator, a powerful trading strategy could be constructed.
Pin Bar Illustration
In an actual example, the recent price behavior for the “USD JPY” currency pair is depicted in the diagram below
Pin Bar formations typically set up best in strong trends. There are no less than four formations, denoted by the green ovals, within the trading channel highlighted by the red dashed lines. The left bar is known as the “left eye”, the right as the “right eye”, and the middle as the “nose”. The characteristics for the setup follow these rules:
- The open and close of the “nose” is between the range for both eyes;
- The open and close of the “nose” are very close together, the closer, the better;
- The open and close of the “nose” is closer to one end than the other, the closer, the better, and
- The nose or wick of the “nose” extends beyond both eyes, the further, the better.
The Pin Bar formation can be bearish or bullish, as noted in the diagram. Some formations tend to be just outside the classic definition, but are still deemed to be Pin Bars when they fit nicely within a channel formation of a major trend line. When Pin Bars form in a dominant trend, such as the one above, their trading signals tend to be very accurate. However, as with all technical analysis, the caveat that past results are no guarantee of future performance must always be taken into account.
How to Trade Pin Bar Formations
The first objective is to find the classic Pin Bar setup, hopefully, as well defined as the second example in the above chart. Enter after the nose breaks, and set a stop at the end of the wick. If a strong trend is not evident, be sure to use the Pin Bar strategy in tandem with Fibonacci retracement levels, strong support and resistance levels, trend lines, or moving averages.
In the example above, Elliott Wave Theory would have also defined the impulse wave, the first leg beginning after the weak bearish formation at the left. The remaining four legs and corrective “A” and “B” legs follow, with the “C” leg breaking out of the channel. Any Metatrader broker trading platform will supply the tools for additional confirmation. With confirmation from two sources for entry and exit, this one trade could have yielded a 2.2% profit over a period of four days plus a weekend.
Pin Bar signals are not as reliable in sideways, choppy markets.
The Pin Bar Trading System can be a very effective trading tool for all traders to add to their technical toolbox. Pin Bar strategies have been shown to work in a variety of time frames, but 4-hour, daily, and weekly charts are highly recommended. Keep in mind that trading on margin is risky. Keep leverage low and don’t risk to large a portion of our equity on any one trade.