Pin bars are one of the most important and special kind of Japanese candles that so many traders make their trading strategies just based on the pin bar pattern. Pin bars are the market movers. Many times they are at the end of a running trend and at the birth of a new trend. Bullish pin bar is the sign of buyers’ strength and the bearish pin bar signals selling pressure which is the opposite of a pin bar.
The color of the pin bar is not that important. What you want to pay attention to is the wick of the pin bar. The wick of the pin bar shows exhaustion.
A pin bar with a long upper wick shows sellers’ exhaustion, which means buyers are getting weak and sellers are taking over. The same applies for a pin bar with a long lower wick. Sellers are losing momentum and buyers are getting stronger.
In order to consider a pin bar valid, the tail of the pin bar must be twice as long as the body of the candle.
Based on their formation, you will find three types of pin bars in a chart.
Standard pin bar is the strongest one you will find which does not contain any extra wick or shadows attached to the body.
Pin bar with nose or “Hanging Man” is weaker than the standard pin bar. It contains a nose or a wick attached to the body of the pin bar which shows the weakness of the pin bar. The length of the nose should not be longer than the size of the body.
A pin bar with no real body has an opening and closing price which are the same. They are sometimes called “Dragonfly Doji” or “Gravestone Doji”. It contains no body and no nose. The signal strength of this pin bar is weak compared to the other two we have talked about. Only a strong bullish or bearish bar after this type of pin bar will indicate a good trade signal.
During an uptrend, when price pulls back or retests, look for a pin bar pattern to signal a buy entry opportunity. Look for areas of possible retests, breakouts, and bounce on support.
Place a buy order after the closing of the pin bar. Set a stop loss 20-30 pips below the pin bar’s tail, and set the profit target to be bigger than the size of the stop loss.
During a downtrend, look for a bearish pin bar on areas of possible retests, breakouts, and bounce on resistance.
Place a sell order after the closing of the pin bar. Set a stop loss 20-30 pips above the pin bar’s tail, and set the profit target to be bigger than the size of the stop loss.