One of the key entry criteria we use in our Live Room is the Pin Bar. This is a simple bar or candle that is very easy to recognize visually.
The definition that WE use in our live room for a Pin Bar is this:
“The Open and Close must be in the top third or the bottom third of the bar. Therefore, the tail must make up two thirds of the entire candle size. Also, the Open and Close of the Pin Bar has to be within the range of the high and low of the previous bar.”
(Our own definition for a Pin Bar is slightly different from the more standard definitions you may have read from other sources. Notice also we’re not concerned if the candle’s open his higher than its close.)
Visually the Pin Bar candle looks something like this:
It’s pretty easy to spot on a chart. Essentially, you’re looking for a candle with a relatively long tale and the open & close of that candle to be within the previous bar’s range. That’s it.
Conceptually, this candle reflects a reversal in momentum. For example, with a bearish Pin Bar, the price opens then moves up rapidly but rejects the price levels above. It moves back down to close near its open and near the bottom of the range of the bar.
But a Pin Bar by itself doesn’t mean that we should just enter a trade automatically. It has to tie in meaningfully with the surrounding price action.
Let’s get right to an example. This trade was one that we called in our Live Room earlier in the week based on a Pin Bar on the 15-Minute EUR/JPY chart.
The price had run up rapidly and then began to trade in a range. After marking out a resistance, the price produced a Pin Bar (highlighted in grey). The high of the Pin Bar (marked on the above chart by the red dotted line) matched the previous resistance within couple of pips. We entered short at the open of the next candle. The stop-loss was just above the high of the Pin Bar (17 pips); the trade netted +48 pips.
The reversal indicated by a Pin Bar matched previous resistance and allowed us a safe entry near the very beginning of a downtrend.
In summary:
1. A Pin Bar is a candle with a long tail and the open & close either in the top or bottom third of the bar. It marks a potential reversal in price.
2. A Pin Bar must be viewed in context of the surrounding price action and trades based on it must have the usual risk/reward considerations.
