Pin Bar Forex Trading Strategy – Pin Bar Definition

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Nial Fuller, Nial Fuller February 25, 2010

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.

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• 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.

How to Trade a Pin Bar Formation

The pin bar formation is a reversal setup, and we have a few different entry possibilities for it:

“At market entry” – This means you place a “market” order which gets filled immediately after
you place it, at the best “market price”. A bullish pin would get a “buy market” order and a
bearish pin a “sell market” order.

“On stop entry” – This means you place a stop entry at the level you want to enter the
market. The market needs to move up into your buy stop or down into your sell stop to
trigger it. It’s important to note that a sell stop order must be under the current market price,
including the spread, and a buy stop order must be above the current market price, including
the spread. If you need more help on these “jargon” words checkout my free beginners forex
course for more.

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On a bullish pin bar formation, we will typically buy on a break of the high of the pin bar and
set our stop loss 1 pip below the low of the tail of the pin bar. On a bearish pin bar formation,
we will typically sell on a break of the low of the pin bar and place a stop loss 1 pip above the
tail of the pin bar. There are other stop loss placements for my various setups taught in my
advanced price action course.

“Limit entry” – This entry must be placed above the current market price for a sell and below
the current market price for a buy. The basic idea is that some pin bars will retrace to around
50% of the tail, so we can look to enter there with a limit order. This provides a tight stop loss
with our stop loss just above or below the pin bar high or low and a large potential risk
reward on the trade as a result.

To effectively trade the pin bar formation

you need to first make sure it is well-
defined, (see pin bar characteristics listed
at the top of this tutorial). Not all pin bar
formations are created equal; it pays to
only take the pin bar formations that meet
the above characteristics.

Next, try to only take take pin bars that are

displaying confluence with another factor.
Generally, pin bars taken with the
dominant daily chart trend are the most accurate. However, there are many profitable pin
bars that often occur in range-bound markets or at major market turning points as well.
Examples of “factors of confluence” include but are not limited to: strong support and
resistance levels, Fibonacci 50% retracement levels, or moving averages.

How to trade pin bars from key chart levels

Trading Pin Bar Signals with Support and Resistance Confirmation, is perhaps one of the
most effective ways to trade forex, if not thee most effective way to trade. Below, we will
show some examples of trading pin bars from key levels. Follow along closely because this
is likely to be one of the most powerful Forex trading strategies you will ever learn.

Pin bars are one of the most valuable tools that price action traders have in their Forex
trading arsenal. They often form at major market turning points, correction levels, or within a
trend as continuation signals. When combined with a strong support or resistance level, pin
bars can be one of the most accurate trading signals available. The best pin bar setups
occur near confluent levels of previous price action as the market moves in one direction and
then regresses back to re-test a previous support or resistance level. We can see in this daily
chart of EUR/USD two successive pin bars testing a previous support and resistance level
and then resuming downward movement

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Pin bars occur in all market conditions; up
trends, down trends, and range bound.
The beauty of price action analysis is that
it teaches you how to analyze market
movement based on inherently generated
data; namely price data. Reversal bars
taken at confluent levels can act as a map
to long-term profits in the forex market.
Trader’s can design a highly profitable
trading method entirely around pin bars if
they so desire. The more confluence
added to a pin bar formation the more
accurate it becomes. We can see in this
daily chart of GBP/USD below a beautiful pin far formed at a previous support/resistance
level with the up trend and also at a Fibonacci 50% retrace level. The more confluence you
can combine with a pin bar signal the higher its accuracy becomes.

Pin bars are adaptable to ever-changing

forex market conditions and can be very
profitable even in ranging markets. They
can be very accurate if the formation is
clear and obvious and combined with solid
support or resistance confirmation. We can
see in the daily chart of EUR/JPY below
two very well formed counter-trend pin
bars that formed off support in a range
bound market that netted some serious
gains for traders with a keen eye for price
action analysis. Pin bars of this clarity and
magnitude can be entered after the close
on a market order.

Pin bars can be taken at major market turning points counter-trend if they are very well
formed. Often times long-term trend changes are set off by large pin bars that can result in
some serious gains for traders aware of the potential. The daily GBP/JPY chart below
demonstrates how a large, well formed pin bar can tip off traders to longer-term changes in
trend direction. Often times trend changes will occur rapidly and form what is called a “V”
bottom with the bottom bar being a pin bar.

When pin bars form at the top or bottom of a consolidating market that is taking a breather
after a large directional movement they can often signal trend resumption is near. In the daily
chart of USD/CAD below we can see multiple pin bars formed at the top of a range bound
market that was most recently in a large down trend. The last pin bar on the right side of the

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chart set off a very powerful move that
resulted in a breakout of the range and
subsequent downward trend resumption.

pin bar reversals are a great price action

tool that forex traders can use in all market
conditions. They are best played at
confluent levels with strong support and
resistance confirmation. Pin bars taken
with the dominant daily trend are generally
more accurate than counter trend pins.
However, counter trend pins can set off
long-term directional bias changes that
can mean serious cash for traders with a
trained eye. Pin bars work great at the
tops and bottoms of range-bound markets
and provide very accurate setups in these
conditions.

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?

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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.

Pin bar in range-bound market and at

important market turning point (trend
change):

In the chart example below, we can see a

bearish pin bar sell signal that formed at a
key level of resistance in the EURUSD.
This was a good pin bar because it’s tail
was clearly protruding up through the key
resistance and from the surrounding price
action, indicating that a strong rejection as
well as false-break of an important
resistance had taken place. Thus, there
was a high probability of a move lower after that pin bar. Note the 50% limit sell entry that
presented itself as the next bar retraced to about 50% of the pin bar’s length before the
market fell significantly lower…

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Pin bar in-line with trend with multiple
factors of confluence:

In the chart example below, we are looking

at a bearish pin bar sell signal that formed
in the context of a down-trending market
and from a confluent area in the market.
The confluence between the 8 / 21
dynamic EMA resistance layer, the
horizontal resistance at 1.3200 and the
downtrend, gave a lot of “weight” to the pin
bar signal. When we get a well-defined pin
bar like this, that has formed at a confluent
area or level in the market like this, it’s a very high-probability setup…

Other names you might find pin bars described by:

There are several different names used in ‘classic’ Japanese candlestick patterns that refer
to what are basically all pin bars, the terminology is just a little different. The following all
qualify as pin bars and can be traded as I’ve described above:

• A bearish reversal or top reversal pin bar formation can be called a “long wicked inverted
hammer”, “long wicked doji”, “long wicked gravestone”, or “shooting star”.

• A bullish reversal or bottom reversal pin bar formation can be called a “long wicked
hammer”, “long wicked doji”, or “long wicked dragonfly”.

In Summary

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The pin bar formation is a very valuable tool in your arsenal of Forex price action trading
strategies. The best pin bar strategies occur with a confluence of signals such as support
and resistance levels, dominant trend confirmation, or other ‘confirming’ factors. Look for well
formed pin bar setups that meet all the characteristics listed in this tutorial and don’t take any
that you don’t feel particularly confident about.

Pin bars work on all time frames but are especially powerful on the 1 hour, 4hour and daily
chart time frames. It is possible to make consistent profits by only trading the pin bar
formation, and you can learn more about it in my price action trading course. Upon adding
this powerful setup as one of your main Forex trading strategies, you will wonder how you
ever traded without it.

Nial Fuller

About Nial Fuller

Nial Fuller is a Professional Trader, Investor & Author who is considered ‘The Authority’ on
Price Action Trading. His blog is read by over 200,000+ followers and he has taught 25,000+
students since 2008. In 2016, Nial won the Million Dollar Trader Competition. Checkout Nial's
Professional Trading Course here.
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