The pin bar is defined as a bar that comes with a long lower or upper shadow, wick, or tail. It has a small actual body. Pin bars can be found in all stripped down candlestick or bar charts. Candlestick charts are utilized due to their capability to effectively display the price action. Additionally, professional traders prefer to use them instead of the standard bar charts since they are believed to have an enhanced visual depiction of the price action.
Pin Bar Formation
The pin bar formation is a price process retrieval design that indicates that a price point or a particular level in the market has been denied. When traders familiarize themselves with pin bar formation, they are bound to notice how much profits they can make from this pattern just by monitoring any price chart. Below is a pin bar formation analysis to help you understand how you can use the pin bar approach amid fluctuating market conditions.
Pin Bar Formation Features
The pin bar must possess a long lower or upper tail, which is also often referred to as the shadow or wick. This is the pointing section of the pin bar whose shape is similar to a tail. It indicates a distorted level break or rejection.
The section between the pin bars’ close and open is referred to as the actual body or simply body. It comes in light and colored white colors in the event the open was lower than the close. It assumes a dark color if the open was higher than the close.
The pin bar’s open and close need to be equal or quite close together. The pin bar’s close and open are close to one end of the bar. They can be more effective when situated close to the end. The pin bar’s tail or shadow protrudes from the enclosing price bars. The longer the pin bar’s tail the better.
It is critical to understand that the pin bar tail should be two thirds or more the pin bar’s total length. The remaining pin bar needs to be a third or less the pin bar’s total length. The opposite end of the tail is also known as the nose.
Bullish Retraction Pin Bar Formation
In this setup, the tail of the pin bar points down which is an indication of the denial of a specific support level or lower prices. Many times, this setup results in a price rise.
Bearish Retraction Pin Bar Information
In this setup, the tail of the pin bar points up to display a resistance level or a denial of higher prices. Many times, this setup results in a fall in prices.
Trading a Pin Bar Formation
Since the pin bar formation is a retraction setup, there are limited entry possibilities for the same as seen below.
On stop entry
This means placing a stop entry at the specific level you need to enter the market. The market requires to advance into the buy down or stop in the sell stop to generate it. It is worth noting that the sell stop order should display the spread, current market price, and the buy stop order should be higher than the existing market price and include the spread.
At market entry
This means putting a market order that replete immediately it’s placed in at the most favorable market price. While a bearish pin gets a sell market order, a bullish pin gets a buy market order.
Individuals would have to purchase on a discontinuity of the soaring pin bar and appoint a stop loss 1 pip beneath the pin bar’s low tail on the bullish pin bar formation. On the bearish pin bar formation, on the other hand, individuals would have to sell on a discontinuity of the reduced the pin bar and place a stop loss 1 pip over the pin bar tail.
In order to trade the pin bar formation effectively, ensure that it is adequately defined. Remember, the pin bar formation creation process for each forex trading demo account varies. Adopting the pin bar formations that comply with the above-mentioned characteristics is recommended.
Disclaimer: This content does not necessarily represent the views of IWB.