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.
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.