Pin Bar Forex Trading Strategy – Pin Bar Definition

An Introduction To The Pin Bar Forex Trading Strategy and How to Trade It Effectively… The pin bar formation is a price action reversal pattern that shows that a certain level or price point in the market was rejected. Once familiarized with the pin bar formation, it is apparent from looking at any price chart just how profitable this pattern can be. Let’s go over exactly what a pin bar formation is and how you can take advantage of the pin bar strategy in the context of varying market conditions.
What is a Pin Bar?
The actual pin bar itself is a bar with a long upper or lower “tail”, “wick” or “shadow” and a much smaller “body” or “real body”, you can find pin bars on any stripped-down, “naked” bar chart or candlestick chart. We use candlestick charts because they show the price action the clearest and are the most popular charts amongst professional traders. Many traders prefer the candlestick version over standard bar charts because it is generally regarded as a better visual representation of price action.

Characteristics of the Pin Bar Formation

• The pin bar should have a long upper or lower tail…the tail is also sometimes called the “wick” or the “shadow”…they all mean the same thing. It’s the “pointy” part of the pin bar that literally looks like a “tail” and that shows rejection or false break of a level.
• The area between the open and close of the pin bar is called the “body” or “real body”. It is typically colored white or another light color when the close was higher than the open and black or another dark color when the close was lower than the open.
• The open and close of the pin bar should be very close together or equal (same price), the closer the better.
• The open and close of the pin bar are near one end of the bar, the closer to the end the better.
• The shadow or tail of the pin bar sticks out (protrudes) from the surrounding price bars, the longer the tail of the pin bar the better.
• A general “rule of thumb” is that you want to see the pin bar tail be two/thirds the total pin bar length or more and the rest of the pin bar should be one/third the total pin bar length or less.
• The end opposite the tail is sometimes referred to as the “nose”
Bullish Reversal Pin Bar Formation
In a bullish pin bar reversal setup, the pin bar’s tail points down because it shows rejection of lower prices or a level of support. This setup very often leads to a rise in price.
Bearish Reversal Pin Bar Formation
In a bearish pin bar reversal setup, the pin bar’s tail points up because it shows rejection of higher prices or a level of resistance. This setup very often leads to a drop in price.
Examples of the Pin Bar Formation in Action
Here is a daily chart of CAD/JPY, we can see numerous pin bar formations that were very well defined and worked out very nicely. Note how all the pin bar’s tails clearly protruded from the surrounding price action, showing a defined “rejection” of lower prices. All of the pin bars below have something in common that we just discussed, can you guess what it is?
If you said that all the pin bars in the above chart are “bullish pin bar setups”, then you answered the question right. Good job!
In the following daily USD/JPY chart we can see an ideal pin bar formation that resulted in a serious move and trend reversal. Sometimes pin bars like this form at significant market turning points and change the trend very quickly, like we see below. The example in the chart below is also sometimes called a “V bottom reversal”, because the reversal is so sharp it literally looks a V…
Here is an example of a trending market that formed numerous profitable pin bar setups. The following daily chart of GBP/JPY shows that pin bars taken with the dominant trend can be very accurate. Note the two pin bars on the far left of the chart that marked the start of the uptrend and then as the trend progressed we had numerous high-probability opportunities to buy into it from the bullish pin bars shown below that were in-line with the uptrend.

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