The Pin Bar is a price action reversal pattern and when it forms, it clearly shows that the price was rejected by the market at a certain price level or point.
A Bearish Pin Bar Formation:
the very long tail tells you that the bulls took over and pushed the price a very long way up to form a high, but that high was not maintained. The bears came with such a great force and took over and pushed price down all the way, wiping away all the price gains made by the bulls. The price fell, made a low and then close a little bit below the opening price in the red.
so what does this mean? It means the when you see such a bearish pin bar formation, you should be very alert that the bears are now most likely taking over the market and will continue to push price down.
For A Bullish Pin Bar Formation:
a bullish pin bar formation is the exact opposite of the bearish pin bar formation: the long tail tells you that initially, the bears took control of the market and pushed the price all the way down to make a low but this low was not sustained. After the low was made, the bulls took over with such ferocity and force and pushed the price all the way up, completely wiping all the downward price moves made by the bears and making a high and finally closing a little bit below the high in the green.
interesting huh? So as a swing trader, what should you get from this? Well, it means that when you see such a candlestick formation, you should be alert now that those bulls are most likely taking over the market and will continue to push price up.
BEST LOCATIONS TO TRADE THE PIN BAR
This is one very important criteria if you are looking to trade the pin bar: you just cannot trade all the pin bars you see.
It does not make any sense at all to trade all the Pin Bars You see because of one very simple reason: the location of where the pin bar forms impacts you probability of success.
Trading the pin bar is really straight forward. Here are the rules:
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Wait and watch for the pin bar to form on the levels above like Fibonacci levels etc..listed above.
and depending on whether its a bullish or bearish pin bar you will have to place a pending sell stop order 3-5 pips below the low of the bearish pin bar and place a buy stop order 3-5pips above the high of the bullish pin bar.
Place your stop losses on the other side of the pin bars of the same distances as you placed the pending orders, that is, 3-5 pips above the high if its a sell stop order and 3-5 pips below the low if its a buy stop order.
for take profit targets, use previous swing high points/peaks or swing low valleys/bottoms as you take profit targets.
while the price moves favourably, you have to lock in your profits by using the trailing stop technique where you move and place behind subsequent decreasing swing high points/peaks for a sell order and behind increasing swing low points/valleys/bottoms for buy order.
In this way, whatever happens, you have locked profits for that trade and if the market moves against you, you would have still made a profit anyway.