Supply and demand trading course

How to use japanese candlestick…

The pin bar as an entry signal
(Detailed Text Lesson )

Supply and demand

The pin bar as an entry

signal (Detailed Text
Lesson )
LESSON 36 MODULE 6

In the last lessons, you learned how to qualify

valid supply and demand zones based on the
following factors:

-The strength of the move: How the market

leaves the zone determines the quality and the
strength of it. Banks and financial institutions
trade millions of dollars every single day, and
when they place an order, the market
responds strongly, and we can see this on our
chart; but when the move is not strong
enough, we can’t be sure that there is a
financial institution behind the move, so to
make sure the move is strong, you simply look
at the time spent in the zone, and the candle
size of the move.

-The breakout of previous support and

resistance: The breakout of previous support
or resistance level is a sign that the move is
strong, and there is a financial institution
behind it.

-The freshness of the zone: The zone should

be fresh, either a virgin zone that is going to be
tested for the first time, or a zone that is going
to be tested for the second time.

-The alignment of the zone with the higher

time frame : If the zone is in line with the
higher time frame direction, this factor gives it
more strength , but we can trade strong supply
and demand zones even against the trend, I’ll
explain you how to do it in the next lessons.

-The minimum reward to risk ratio: This

factor should be taken into account when
spotting a valid supply and demand zone; the
risk to reward ratio is what will make you a
successful trader or a loser trader. Supply and
demand zones with less than 2/1 reward to
risk ratio should be ignored.

When you spot a supply or a demand zone

that respect these criteria, there is no
guarantee that the trade is going to go in your
favor, because this is only a method that allow
you to follow banks and financial institution
footprints. So, when you qualify a valid supply
and demand zone, you will always need to see
if the zone responds or not. If the zone
responds, the market will give you a signal in
form of a price action to confirm your entry.

One of the most important price action

patterns that can be used as a confirmation
signal is the pin bar candlestick pattern.

The pin bar can include the following

previously described candlestick patterns:
lower shadow candles, and long upper shadow
candles, hammers and shooting stars,
dragonfly and gravestone Doji, look at an
example below:

These different versions of pin bars happen

frequently in supply and demand zones, so
when you draw your zone and you see that all
the criteria are in place, if a pin bar formed,
this is a clear signal to enter the market. Look
at the chart example below:

This is the GBP JPY H1 chart. The market

formed a Drop-Base-Rally demand zone, the
basing candle is an inside bar pattern, so to
draw the zone, you draw the proximal line at
the close of the inside bar and the distal line at
the lower shadow of the first candle.

Let’s see if the zone is worth risking our money

or not; look at the move, it is quick and strong,
the candles size is big, and the previous
resistance level is broken. The zone is fresh,
and the risk to reward ratio is good, so we can
say that the zone is a valid but we need to wait
for a clear price action setup to form.

When the market retraced back to test this

zone, prices were rejected forming a nice pin
bar candlestick pattern, so you can enter after
the close of the pin bar; to do this , you simply
place your stop loss below the distal line, and
your profit target is the next support level. Look
at another example below:

This is the USD CAD H4 chart. The market

formed a nice demand zone, the basing candle
is a pin bar so to draw the zone, you draw the
proximal line at the nose of the candle, and the
distal line at the lower shadow.

The move is quick and strong, as you can see

the market didn’t spend long time in the zone,
and the candle that made the move is strong.
The zone is fresh and the previous resistance
level is broken.

The risk to reward ratio is accepted, and as

you can see, the trade offers approximately
2.5/1 reward to risk ratio, meaning that right
now, all these factors indicate that this level is
a valid demand zone. However, we still need a
confirmation signal to enter the market.

The formation of the pin bar after this

retracement back to the zone is a strong
signal,so to enter the market, you can place a
buy order at the close of the pin bar,a stop loss
below the distal line; and the profit target is the
next resistance level. Look at another example
below:

This is the EUR/CAD 15 minutes chart, and as

you can see here, the market formed a good
supply zone: The move is not very strong, but
it is accepted, the previous support level is
broken, the candles size is big, the zone is
fresh, and the risk to reward ratio is very
attractive. These criteria indicate that this
supply zone is valid, but we still need a
confirmation signal to enter the market. The
formation of the pin bar candlestick pattern
was a powerful signal to short the market.

The formation of the pin bar in this zone,

means that buyers were strongly rejected by
sellers, this is a clear evidence that the zone
still works, because sellers are still willing to
sell from this area.so this price action trading
setup validates the zone and confirms our
entry. Look right now at how you can enter and
exit the market using this price action pattern
using the chart below:

As you can see, after the formation of the pin

bar, your entry should be after the close of it,
your stop loss should be above the upper
shadow, and your profit target is the next
support level. Notice that this trade provides us
with a good risk to reward ratio. Look at
another chart example below:

The chart above shows another supply zone.

The move is not very strong, but it is accepted;
the zone is fresh, and the previous support
level is broken. The risk to reward ratio is very
attractive because this trade offers at least 3/1
reward to risk ratio.

The formation of the grave stone Doji (a pin

bar) is a powerful confirmation to short the
market. Look at the chart below to see how
you can place your entry order and your profit
target:

As you can see, after the formation of the pin

bar, you place an entry order at the close of
the pin bar, and the stop loss above the distal
line or five pips above it, and your profit target
is the next support level. Look at another
example below:

This is the AUD USD H4 chart; the market

formed a clear demand zone, and as you can
see, the move is very strong, the zone is fresh,
the previous resistance level is broken , and
the risk to reward ratio is good.

When the market retraced back to test this

demand zone, prices paused forming an inside
bar followed by a pin bar, so it is up to you to
enter at the breakout of the inside bar or at the
close of the pin bar.

In this example, we are learning how to use

pin bars as confirmation signals, so we will use
the pin bar candlestick pattern as an entry
signal. So, you can place your buy order at the
close of the candle, your stop loss should be
below the distal line and the profit target is the
next support level.

So, this is how you can use pin bar patterns as

confirmation signals to enter the market when
trading supply and demand zones, in the next
lesson, you will learn how to use inside bar
patterns as entry signals as well.

Ps: If you are a complete beginner and you

want to learn more about price action, i highly
recommend you my best seller ebook below :

Click on here or on the ebook cover if you

want to get your copy

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