Pin Bar Success - Keep it Simple

Huzefa Hamid

I’ve been a contributing author to DailyForex for over three years now and one of the first pieces I submitted was about the humble Pin Bar. And today, three years later, I still use this same candle with the same technical set up.

Trading a Pin Bar is simple. The fundamental and political events surrounding the market are complicated and change over time. The technical principles based on human reactions to those events don’t change. Because people’s psychology doesn’t change. That’s why I can trade using the same technical principles that I used three years ago.

Let’s look at a trade I placed early this morning on the EUR/USD 4-hour chart.

EURUSD h4 111814

I had marked out the most recent resistance on my chart at 1.2577. When the price returned to that area, it formed a Pin Bar confirming the resistance. In this case, the tail of the Pin Bar hit the resistance to the exact pip.

What’s a Pin Bar: it is a candle where the entire body is in the top third or bottom of the total candle length. That gives the candle an appearance of a pin. It signifies a reversal and if taken with another piece of information on your chart, such as a previous support or resistance, it signifies a strong reversal because there is “confluence”.

In this case, I entered the trade with a market order at the open of the next candle. I placed my stop-loss just above the high of the Pin Bar which made it 35 pips. On this trade, I was aiming for a 1:1 risk/reward. On 4-hour timeframes and above I typically go for 1:1 because of the longer time I am in the trade. I usually go for higher risk/reward ratios on lower timeframes.

My target was filled in the next candle. Actually, within three candles and at the time of writing this, the price had moved almost 100 pips in the money. But I was out at a mere 35 pips and happy relative to my risk on the trade.

On my charts, the settings are GMT + 2 hours. If you have a broker with different settings, the 4-hour candle may start at a different time which means you may not spot the Pin Bar. Sometimes I miss trades because of this, but that’s okay. You can’t get them all.

So that’s the entire trade: previous resistance, Pin Bar at resistance, short entry with target & stop-loss. Simple.

Huzefa Hamid

I’m a retail Forex trader and I exclusively use Technical Analysis to trade. I believe that Technical Analysis offers the cleanest way to predict the future direction of price movements. The fundamentals and news create the market sentiment and emotions, and that in turn is reflected in the price chart. Your bet as a trader is not on the fundamentals – it’s on what happens to the price as a result of those fundamentals.

Did you like what you read? Let us know what you think!

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2 User comments
Huzefa
2014-11-21 00:48:12Z

In answer to the above comments from the author of the article:

I like your choice of words describing confluence as a “perfect storm”. That is essentially what confluence is: a series of events in the market that, when occurring together, will give you a high probability outcome.

Your next two questions: Does it ever get stressful? And what about all the other factors beyond our control? To answer those two questions, it’s important to remember we are only looking to enter a trade when the criteria that we have pre-identified and tested are met. If those criteria are not present, then we do not trade. We sit on our hands. It’s as simple as that. For example, if we are waiting for a Pin Bar, then until one appears on time timeframe we want, we simply wait it out. Trading becomes stressful when we deviate away from our strategy because we will then trade in an untested environment. There will always be factors beyond our control; that is a part of trading, but also of any endeavor in business or in life. However, when we trade, we focus on trading only what we know produces a high probability outcome. We recognize as traders that there can be factors outside of our control and that is why we use a stop-loss if our trade goes against us. And that is why we decide in advance how much of our capital to risk on each trade as a percentage of our total account size. This manages the risk for those occasions when say an unexpected news announcement pushes the price in the opposite direction. These kinds of events will happen from time to time, but if we have tested our strategy over time, we should know what our expected win rate will be. In short, if we are trading within our parameters that we have tested, trading should be stress free.

And to your last question: can we really predict the psychology of human behavior? There are certainly predictive elements of human psychology. When we are trading a liquid market we are making predictions of crowd psychology in particular. This is much more predictable than predicting just one individual’s actions. Crowds “average out” in their collective actions. For example, if you are managing a sports venue, you know that if the stadium is full, a certain percentage will use the washrooms and a certain percentage will buy food. You may not know exactly which people will do so; but from past games you have a pretty good predictor of how the crowd will behave in the future. It is important to remember that Technical Analysis relies on the predictive element of crowd psychology. That means do not expect Technical Analysis to work when you are trading a market that is illiquid or has few participants, or even trading a market during an illiquid time, such as on a major holiday or after-market hours.

vyass
2014-11-20 20:36:27Z

Fascinating! So you basically give hints on how to trade more effectively through probability. I love the concept of confluence, kind of like the perfect storm idea I suppose where all the elements balance together in just that precise moment. But doesn't it ever get stressful doing this? So many factors still beyond your control despite your best efforts to ensure predictability?

And can we really predict the psychology of human behavior? Guess that's a larger question to ask!


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Please make sure your comments are appropriate and that they do not promote services or products, political parties, campaign material or ballot propositions. Comments that contain abusive, vulgar, offensive, threatening or harassing language, or personal attacks of any kind will be deleted. Comments including inappropriate will also be removed.

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