One of the first strategies that began my trading career is the humble Pin Bar that I still use to this day. It is a simple one candle pattern where the body of the candle is either in the top one-third or bottom one-third of the entire candle length. If the Pin Bar lines up with a significant support or resistance, you have an entry on the next candle. That’s it – very simple.
I first introduced the Pin Bar setup on DailyForex here.
The Pin Bar is a pure technical setup. It occurs across all timeframes. And it occurs across all markets – Forex Majors, Forex Crosses, futures, equities…
My friend Stan recently sent me a textbook Pin Bar trade that he took. The following chart is the Daily CAD/CHF (Canadian Dollar vs Swiss Franc).
The most recent significant Support on this chart was made on 2 April, 2015 at 0.7586. After making the Support, the price then moved back towards it and produced a Pin Bar on 7 May, 2015 as it hit the Support. The Pin Bar’s wick or tail penetrated the Support line nicely and the price closed above the Support. This Pin Bar was showing a clear rejection of that Support level. Now, a lot of traders can read into that penetration of the Support and the subsequent close above it as a “stop-hunt” move: this is where the market is professionally manipulated to catch stop-losses and short-traders getting in below the Support. Whether or not this was an actual stop-hunt move, I do know from my previous experience that when a significant support is penetrated by a Pin Bar but closes above that level, it presents an opportunity to enter Long or to buy the market.
My entry would have been at the open of the next candle. The stop-loss should be a few pips below the bottom of the Pin Bar, about 103 pips. When entering, make sure that there isn’t a previous Resistance that would prevent you from getting a target that’s less than your risk. In other words, you want to make sure you get at least a 1:1 risk/reward ratio.
Currently, the trade is just over +100 pips in the money, i.e. it has reached 1:1 risk/reward. The next minor resistance is +150 pips from the entry and the next major resistance is about +340 pips from entry (both marked in green).
Where would I exit this trade? Personally I would take 1:1 risk/reward. I like getting out and getting what I need. But the two previous resistance areas are also valid exits. If you are going to wait for the next major resistance at +340 pips, you should move your stop-loss to breakeven and exit some of your trade to capture profits.