Candle Pattern to Add to Your Arsenal

04/02/2012 11:55 am EST

Focus: STRATEGIES

Johnathon Fox, contributor to Daily Forex, demonstrates how a powerful candle pattern called a “pin bar reversal” can help traders identify and effectively trade reversals in price in any financial market.

The Pin Bar Reversal is a price-action signal that can be found on nearly all markets and time frames. The term “pin bar,” or “Pinocchio bar,” was originally termed by price-action trader Martin Pring because of the pin bar’s long nose.

The pin bar will often catch traders trying to play a breakout before snapping in the opposite direction and stopping them out. Pin bars are excellent for catching reversals in markets and also for entering trades with the trend from pullbacks.

A Pin Bar formation must have the following:

  1. Open and close within the previous bar
  2. A candle wick at the minimum three times the length of the candle body
  3. A long nose protruding from all other bars (must stick out from all other candles)

Bearish Pin Bar Example

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The pin bar can be traded with or against the trend. Quite often, you will find pin bars will be the catalyst for the market trend changing directions.

Bullish Pin Bar Changes the Trend

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When learning to trade the pin bar, it is advisable that traders only enter with the obvious trend in their favor. Trading against the trend can be extremely difficult. The new trader must first learn how the markets operate and also how to trade within a trend before attempting to trade against the trend.

Pin Bar Example: Trading with the Trend

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Once traders have a firm grasp of what the pin bar looks like, they will begin to notice them popping up all over their charts. This does not mean every pin bar should be traded. Not all pin bars are created equal.

The best pin bars are the ones that form after a pullback in the market. Pin bars that form without a pullback in the market can be dangerous. Pin bars are reversal signals, and traders need to look for them from swing points or pullbacks in the market. Pin bars are not continuation signals, and to try and trade them as such is not advised.

Pin Bar from a Pullback in the Market

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Pin Bars can be a very powerful price-action signals when traded from the correct areas in the market.

By Johnathon Fox, contributor, Daily Forex

Johnathon Fox is a professional forex and futures trader who also tutors and mentors aspiring traders worldwide. Johnathon teaches a very useful method of Price Action trading and has a knack for helping traders become consistently profitable. Learn more at Forex School Online.

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