Finding The Pin Bar

The purpose of this section is to give several examples of what a pin bar looks like. Take a look at Figure 5 and the bars that have been numbered (either below or above the bar in question). The chart shows the daily charts for the GBPUSD pair for a period from the 20th January 2006 to the 23rd February 2006. Look at the image and decide whether the numbered bars are good pin bars to trade, based on how they look and where they are. Decide which of these bars, if any, you would trade. See if your comments match those made below.

1. Pin bar has good form. The open and close are nearly equal and they are very close to one side of the bar (in this case, the bottom) and are lower than the previous eye. But the nose is not very long and it doesn’t protrude much from the prices of the previous eye and the bar before it.

2. The open and close are nearly equal and are quite close to one side of the bar (in this case, the high) and are also higher than the previous eye. The nose is not very long and it does not protrude much from the previous eye.

3. The open and close for this bar are nearly the same but they are getting quite close to the middle of the bar – it is almost a neutral bar. It is good that the open and close are above the previous eye. The nose is not very long because of this. (Note that if you played this pin on a break of the pin bar (taking a long position) there would have been no trade as prices went down on the next bar.)

4. The open and close are nearly the same but they are also right in the middle of the bar. It is also an inside bar (or very close to it) where the bar makes a lower high and a higher low than the previous bar – so prices are not protruding.

5. The open and close are near the same price and are right near one end of the bar and are lower than the previous eye. The nose is nice and long, which is good, and protrudes nicely from previous prices. This would have been a good pin to play on the break and we can see that for the next two bars if we had taken a short position there would have been good opportunity to profit from the setup.

6. For this bar the open and close are near one end of the bar and are higher than the eye. Note that the nose doesn’t stick out much beyond the low of the bar that has been numbered 4, so prices have not protruded much. If we look at the next bar we see that prices only go 5 pips above the high of bar number 6, so we would have not entered a long trade anyway.

7. The open and close are not at nearly the same level and the close is nearly half way down the bar and is not higher than the low of the previous eye! The nose does protrude from the prices, but because of the position of the close this is not a pin bar!

8. In contrast, the close of this bar IS within the previous eye, but it is still half way up the bar! The nose also doesn’t protrude much beyond the previous prices. Overall, this would not be a good pin bar to play.

9. Open and close are near one end and are enclosed by the previous eye. The nose is nice and long but fails to protrude from the surrounding prices much, so it would not be a good pin bar.

10. The open and close are near one end of the bar. However, the nose does not stick out. Not a pin bar.

11. This looks promising with open and close near one end of the bar. They are well placed compared to the first eye on the left. The nose sticks out a bit. This bar isn’t at a swing high or swing low or at confluence, though.

Which of these pin bars should a beginner play? The bars numbered 1 and 5 seem to have the best form and have the best long noses that stick out from the surrounding prices. If you are patient over this one month period two pin bars would have been played. They both would have worked well with lots of potential for profit. YES it is easy to say this in hindsight but LOOK for the good pin bar formations while you are trading and try it out. (While trading GBPUSD over this period I personally only took the pin bar labelled 5 and this was the only daily pin bar I traded on the GBPUSD for that period.)

Pin Bar: Introductory Tutorial

This section explains what the Pin Bar is. Following sections explain how it may be traded. Generally examples are only given for pin bars pointing one way. The same concepts can be applied to pin bars pointing the other way (just reverse the concepts!).

Trading is a probabilities game. There is always risk of loss and the trade going ‘the wrong way’ after the pin bar has formed. All we can expect to do is to tip the odds in our favour. When good pin bars are traded then a trader can tip the odds in their favour. Some trades will result in losses; such losses will occur with any trader from time to time. (Even a good pin bar setup may result in a loss!)

Pinocchio bar (which is abbreviated to ‘pin bar’) is poking his long nose outwards andis telling you a lie (an untruth) about where the price is going. The name is based onthe old European story about the wooden boy, Pinocchio, whose nose grew longerevery time he told a lie. The bigger the lie the bigger the nose! For us this means thatwe want a nice long nose when we see a pin bar. We trade in the opposite direction towhere the nose is pointing (so the pin bar in Figure 1 indicates that traders should betaking short positions while trading EURUSD). The high of the bars on either side ofthe pin are the ‘eyes’ for the pin bar. Note that the open and close of the pin must bewithin the left eye.

For a nose pointing up, this means that if the high of the eye isroughly at the 1.2175 level (as shown in Figure 1), then the open and close of the pinbar must be below this level of 1.2175 (as is the case here). If the open/close isoutside of this level then it is not a real pin bar (see the Advanced Tutorial for someideas on how a trader might deal with a bar that looks like a pin bar but fails to meetthis requirement).

The pin bar means that the price is going to move in the opposite direction to wherethe nose is pointing. In Figure 1 the nose is pointing up so the trader should expectprices to move down.

A pin bar must:

• have open/close within the first eye,

• protrude from surrounding prices (‘stick out’ from surrounding prices); it cannot be an inside bar.

A good pin bar has:

• a long nose (and a long nose relative to the open/close/low),

• a nose protruding a long way from the prices around it (it ‘sticks out’),

• the open / close both near one end of the bar.

The pin-bars can be played by themselves as they occur on the charts. Oneforexfactory.com member did some automated back testing and found that merelyplaying a pin bar does not provide spectacular results. You need to carefully select thepin bars you want to play. The best pin bars are played as they bounce off either:

For the BEST results a trader may play a pin-bar on the swing high (or swing low) ora pin-bar that is bouncing off confluence (of MA and Fib levels). The pin bar is a veryreliable setup under these circumstances, indicating that there is a high probabilitythat prices will change direction – which is very tradeable setup!Shown is a cluster of Fibonacci retracement levels from the big moves down during2005. Note that the pin bar is bouncing right off these. This means that the pin bar hasbounced off an area of confluence!Shown in Figure 2 is a close-up of the pin bar that formed on the EURUSD pairweekly chart. Notice that there is confluence of fib retracement levels from the morerecent previous movements down. This pin bar has punched through these, after threeprevious bars were bouncing off this area. This would have been a good pin bar tocatch. The three previous bars failed to move through this area, showing it hassignificant resistance. The pin bar has moved a long way through it before movingright back. The high made by the pin bar is probably the highest price thatwill reached for weeks (or months).

Is this a good pin bar formation? The nose of the pin bar pokes out a long way above previous prices. It has made it through some resistance at the confluence of fib levelsand bounced off the longer-term fib levels (in Figure 2). The open and close are belowthe high of the previous bar (the eye). Yes – this is a good pin bar.