Today  I’d like to talk to you about a recent method I added to my trading arsenal: the pin bar.

What is a pin bar?

The pin bar (or Pinochio bar) is a candlestick that has the following characteristics:

1. it has a wick more than twice as long as the candle body;

2. the other wick is either inexistent or is very small compared to the big wick;

3. the candle body is either inside the previous candle’s range or:

• below the previous candle’s high, if the previous candle was bullish;
• above the previous candle’s low, if the previous candle was bearish.

Examples:

Pin bars on EURUSD

Trade setups using the pin bar

There are a few ways to trade the pin bar. I will only discuss what I have tried and seems to work well for me. First, I would advise to trade these on daily, H4 and no less than H1 charts. They are more reliable as the timeframe increases.

I will show you how to trade these pin bars using images. I think it’s better than writing text and you’ll understand better. So, let’s shoot:

EURUSD pin bar trade setups

The best trades are those in the direction of the trend, like the first one. But the second one was also a great one, although it was counter trend. The pin bar signaled a trend reversal though, so it’s pretty safe to take these on a daily chart.

What I haven’t written over that image is where to place the stop loss. The best would be to place that a few pips outside the pin bar, but sometimes that’s too much. Another option is to place it a few pips outside the bar that’s before the pin bar. That’s just something you decide by watching price momentum. My advice is to only take the trades that have a good risk/reward ratio (at least 1:2), so your take profit should be at least twice the size of your stop loss. If that kind of take profit can’t be achieved based on your analysis, then don’t take the trade.

I’m a bit tired now, so tomorrow I’ll write another article about inside bars and how to combine them with pin bars to find good setups.

Cheers!

PS: Any questions you might have, just drop a comment.