Sometimes a chart or a candlestick pattern may provide a decent entry signal if it is located at a certain level. A pin bar is one of the most reliable and famous candlestick patterns, and when traders see it on the chart, they expect the price to change its direction soon. If you understand how to recognize this pattern and use it in trading strategies, it will serve as an excellent instrument for making reasonable decisions.
What is a pin bar?
A pin bar is a type of candlestick that signals the reversal of prices. It consists of a long shadow, a small shadow, and a body between them. Fun fact: this pattern’s name is short for Pinocchio, as it has a long wick similar to Pinocchio’s nose.
However, besides a long shadow, there are also special market conditions to call a candlestick pattern a pin bar.
In the picture above, you can see two types of pin bars: bearish and bullish.
A bearish pin bar is formed after a solid movement upwards or at the end of an uptrend. Its body is entirely contained within the body of a previous bullish bar. It has a long upper tail that could be three or more times longer than the body size. It can be either bearish or bullish, but the bearish one is believed to provide a stronger signal. The pattern should be confirmed by the bearish candle that opens below the body of the pin bar. This signal shows that bulls tried to push the price higher, but their attempts got rejected.
A bullish pin bar appears at the end of the downward movement or downtrend. It opens within the body of the previous bearish candlestick and has a long lower tail and a small body. The pattern must be confirmed by the bullish candlestick that opens above the closing price of the pin bar.
Now, as you know the main element of the strategy, let’s move on to the setups.
Strategy Requirements
Instruments: Major currency pairs with tight spreads and high liquidity available on a FBS account. Since we will talk about a scalping strategy, we must be attentive to this detail.
Timeframe: M15 or M30.
Technical setups: key levels, trend lines, pin bar formation.
Rules for a short entry
Mark the key levels and identify trend lines.
When a pin bar is formed at the important resistance level, place a “Sell” order 10-20 points below the pin bar’s low.
Place a Stop Loss 20-30 points above the resistance line that caused the rejection of prices.
Place a Take Profit when the price gets twice or three times bigger than your risk for this trade or exit at the significant support level.
Example
The chart above shows that EURUSD tried to spike higher after it reached a local trend line on the M15 chart. However, bulls could not hold the positions for a long time. As a result, the pin bar was formed. After confirming it, we placed a sell order below the low of the pin bar at 1.03497 and a Stop Loss above the recent resistance line at 1.03598. We put a Take Profit level at 1.03194. As a result, we earned 302 points.
Rules for a long entry
Mark the key levels and identify trend lines.
When a pin bar is formed at the important support level, place a “Buy” order 10-20 points above the high of the pin bar.
Place a Stop Loss 20-30 points below the support line that caused the rejection of prices.
Place a Take Profit when the price gets twice or three times bigger than your risk for this trade or exit at the significant resistance level.
Example
On the same chart of EURUSD, we considered a buy scenario. After the price slid below the psychological level of 1.2000 and tested the area near the 1.1900 support zone, the pin bar pattern was formed. We opened a buy order above the high of the pin bar at 1.20058 and placed a Stop Loss at 1.19870. With a 1:3 risk-reward ratio, we set a Take Profit at 1.20619. With this strategy, we earned 560 points.
Bottom Line
Now you know a new scalping strategy for trading. To test the strategy first, you can try it out with a Demo account.
