A Pattern with a High-Win Rate

01/01/2013 9:00 am EST

Focus: FOREX

The staff at DailyForex.com illustrates the use of this tool, which is excellent for catching reversals in markets and for entering trades with the trend from pullbacks.

The pin bar is an easy to spot, objective setup that is consistent and produces a high-win rate. It’s a pure price action method: that means there’s no use of indicators beyond the price chart. And it is timeless.

Definition of a pin bar: the body of the pin bar is within the top third or bottom third of the entire candle range. (It doesn’t matter if the open is higher than the close for either a bullish or bearish pin bar.)

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Let’s take a recent trade setup that we called live:

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Wednesday, December 19, produced a pin bar on the daily GBP/USD chart. This pin bar very plainly lined up with previous resistance coincidentally made by another pin bar back in September. That marked a key resistance level: prior to that level, the price had run up over 800 pips and then retraced 480 pips. Now as it reached that previous resistance again last week, 1.6309, the new pin bar touched the level within 3 pips. Clearly that resistance is still important and is going to produce significant selling before being broken.

Typically we consider two possible entries: the open of the next bar after the pin bar or a stop-entry order a few pips below the pin bar. Our stop-loss would be just above the high of the pin bar.

We use the pin bar in our personal trading, in our live room and in our managed accounts. As simple as the setup is, it’s a serious tool.

We called this trade via email as part of our live room service with an advance stop-entry sell order. Our trade is sitting 80 pips in profit at the time of writing.

By the Staff at DailyForex.com

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