History
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.
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.
Criticism
Pin Bar signals are not as reliable in sideways, choppy markets.
Concluding Remarks
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.