Pin Bar Trading – Simple Price Action Strategies You Need to Know

Pin bars are one of the most common and powerful price action trading strategies. A pin bar forms when price moves sharply during a candle, but by the close has returned close to the open. This “tail” that gets left behind provides traders with valuable information about the market.

In this comprehensive guide, we will cover everything you need to know about trading pin bars, from what they are to how to identify them and simple strategies you can use. Whether you are new to price action or looking to improve your pin bar trading, this guide has you covered.

What is a Pin Bar?

A pin bar is a single candlestick with a long tail or wick on one side, giving it the appearance of a pin or tack. The wick illustrates a strong rejection of higher or lower prices.

The key elements of a pin bar are:

  • The open and close of the candle are close to each other, forming the “body” of the pin bar.
  • There is a long tail on one side, the “wick”, showing rejection of prices.
  • The tail is at least 2/3 the length of the entire bar.
  • It shows a sharp reversal of price action.

A bearish pin bar with long upper tail rejecting higher prices

Pin bars can form in any market (stocks, forex, crypto etc.) and time frame (1 min, 5 min, 1 hour etc.). They provide traders with a visual representation of a shift in market sentiment.

Their simplicity is what makes them so popular. By just analyzing a single bar, traders can identify potential reversals and trading opportunities.

What Does a Pin Bar Tell You?

Pin bars give traders valuable information about the current state of price action. Here is what the tail and body reveal:

  • The Tail – This shows that prices moved significantly higher or lower but buyers/sellers stepped in aggressively and rejected the move. It represents a failed test of support or resistance.
  • The Body – The small body near the open reflects indecision in the market after the initial rejection. It tells us supply and demand are roughly balanced.

For example, an upside pin bar with a long lower tail shows:

  • Bullish pressure initially drove prices sharply higher
  • Aggressive selling came in and rejected the higher prices
  • The close near the open reflects uncertainty after the bullish test

And a downside pin bar with a long upper tail shows:

  • Bearish pressure initially drove prices sharply lower
  • Aggressive buying came in and rejected the lower prices
  • The close near the open reflects uncertainty after the bearish test

These simple candlesticks provide powerful trade signals – if you know how to interpret them properly.

Bullish vs Bearish Pin Bars

Pin bars can be bullish or bearish depending on the direction of the tail:

Bullish Pin Bar: Has a long lower tail and small body near the high of the bar. It shows rejection of lower prices.

Bearish Pin Bar: Has a long upper tail and small body near the low of the bar. It shows rejection of higher prices.

Identifying the pin bar direction is important for determining whether to look for long or short trades.

Where Do Pin Bars Form?

Pin bars form at key support and resistance levels when there is a test followed by rejection.

The long wick shows you the initial test, while the close back near the open reflects the rejection.

On Support: Bullish pin bars form when buyers reject a test of support.

On Resistance: Bearish pin bars form when sellers reject a test of resistance.

This simple concept of “test and reject” is what gives pin bars their power. By going with the rejection, you are trading in line with the current market direction.

Here are some key support and resistance levels where pins frequently form:

  • Horizontal support/resistance
  • Trendlines
  • Moving averages
  • Previous swing highs/lows
  • Whole numbers and psychological levels
  • Volume areas on volume profile

Pay attention if multiple levels align, as this creates a high probability area for pins to form.

What Makes a Good Pin Bar Setup?

Not all pin bars are created equal. Certain characteristics make for a high quality setup with good risk/reward potential.

Here are key things to look for:

  • Size of the tail – Look for a tail 2/3 the size of the overall bar or larger. The longer the rejection tail, the more significant the reversal signal.
  • Body position – Prefer body closed near high (for bullish) or low (for bearish). This shows stronger rejection.
  • Upper/Lower wick – A small wick on the opposite side of tail adds confluence. It shows buyers/sellers tried to break market structure but were immediately rejected.
  • Color of candle – A pin bar that forms as a separate color than previous candles stands out and signals indecision or reversal.
  • Volume – Increased volume during the pin bar shows strong rejection. Look for above average volume.
  • Location – Pin bars at key support/resistance levels have higher probability. Multiple confluent levels add significance.
  • Moving Average – Extra confluence if body of pin pierces or lies just beyond 20/50/200 MA.
  • Preceding price action – Has market been trending strongly or consolidating? Break of trend adds weight.

The more of these characteristics a pin bar has, the higher quality the setup.

Pin Bar Trading Strategies

Now that you know how to identify high probability pin bars, let’s discuss simple trading strategies you can utilize.

There are two primary ways to trade pin bars:

1. As Continuation Signals

This means entering in the direction of the current trend after a pin bar signals rejection of a pullback/retracement.

You go long after bullish pins that form during an uptrend. And you go short after bearish pins that form during a downtrend.

Steps for continuation entries:

  • Identify the current trend – higher highs/higher lows for uptrend and lower highs/lower lows for downtrend
  • Look for pullback/retrace to area of support/resistance
  • Enter pin bar that forms showing rejection of pullback attempt
  • Place stop loss below pin bar tail. Target previous swing point in direction of trend.

Continuation pin bars allow taking advantage of temporary retraces against the major trend.

2. As Reversal Signals

This means entering in the opposite direction of the current trend, as the pin bar shows an impending reversal.

Go long after bullish pins form in a downtrend. And go short after bearish pins form in an uptrend.

Steps for reversal entries:

  • Identify the current trend – lower highs/lower lows for downtrend and higher highs/higher lows for uptrend
  • Look for potential reversal signal at key support/resistance area
  • Enter pin bar showing rejection of trend – bullish pin in downtrend or bearish pin in uptrend
  • Place stop loss above pin bar tail. Target previous swing point opposite trend direction.

Reversal pins require going against momentum but offer great risk/reward with tight stops.

Pin bars work well with other indicators that confirm the reversal, such as RSI divergences, moving average crosses, pattern breaks, and volume surges.

Combining with Price Action Strategies

Pin bars are even more powerful when combined with other price action strategies. Here are some examples:

  • Inside Bar – Enter pin bar after inside bar shows compressed range and impending breakout
  • Engulfing Bar – Favor pins that form as part of or right after bullish/bearish engulfing patterns
  • Consolidation – Use pins that form at resistance/support of consolidation zones and breakouts
  • Harmonic Patterns – Look for pins that confirm harmonic pattern completions like bat, crab, butterfly
  • Breakouts/Breakdowns – Enter pins showing rejection after a support/resistance break

Utilizing pin bars with additional price action context significantly improves your trading edge.

Pin Bar Trading Tips

Here are some additional useful tips for trading pin bars:

  • Be patient and wait for highest quality setups – don’t force trades.
  • Use multiple time frame confluence – 1 hour pin + 4 hour key level = higher probability.
  • Trail stop to lock in profits as trade moves in your favor.
  • Focus on daily/4 hour charts for best risk/reward potential.
  • Avoid pin bars during consolidating or range-bound markets.
  • Combine with candlestick patterns for added confluence.
  • Consider momentum indicators for extra confirmation – RSI, stochastics, MACD.
  • Risk no more than 1% of account per trade. Maintain positive risk/reward.
  • Implement good money management and risk control on all trades.

Mastering pin bar strategies takes screen time and practice. By sticking to high probability setups, you can gain an edge with this simple yet powerful price action technique.

Pin Bar Trading FAQs

Here are some frequent questions traders have about trading with pin bars:

What time frame is best for trading pin bars?

Pin bars form on all time frames. However, the higher time frames like daily and 4-hour provide the best risk/reward setups. Bars on smaller time frames have less significance.

Where should you place your stop loss?

Place stops just above the high of bullish pins or below the low of bearish pins. You want to allow some wiggle room so you don’t get stopped out prematurely.

What is the minimum size of the tail?

Look for a tail at least 2/3 the size of the overall bar. The longer the tail, the more significant the rejection. Tails less than 1/3 the bar size have less meaning.

Should pin bars close in the middle?

Ideally, bullish pins close near the high and bearish pins close near the low. This shows stronger rejection. Closes in middle reflect more indecision.

Can you trade pin bars during consolidations?

It’s best to avoid pins without a defined trend. During consolidations, support and resistance are still forming. Wait for range breakouts.

How do you confirm a pin bar signal?

Look for confirmation from other indicators – volume, moving averages, RSI, second pin bar, candlestick patterns. Confluence boosts accuracy.

Final Word

Pin bars are powerful price action patterns if traded properly. They clearly display “failed tests” of support and resistance, providing reversal and continuation signals.

MUST READ  Divergence Cheat Sheet Free Download

Now you have all the knowledge to begin analyzing and trading pin bars like an expert. Stick to these high probability setups and you’ll be well on your way!

Remember to implement good risk management on all trades. This will allow you to survive the inevitable losses and remain in the game long enough to capture big wins when these simple but profitable pin bar strategies pay off.

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