A pin bar is actually a candlestick pattern where the main body of the candle is very small with a long wick. The wick of the pin bar is two to three times the size of its body. Pin bar formations assist traders to find reversal setups for exhaustive trends and fading corrective moves for trend continuation setups.
Pin bars are also referred to as hammers/ hanging man and shooting stars. There are two types of pin bars namely: the bearish pin bar and the bullish pin bar. The bearish pin bar occurs after an uptrend and has a head with the real body and a long upper shadow.
Figure 1: Showing a bullish pin bar and a bearish pin bar
The color of the head can either be red or green and/or white or black depending on your bar chart. Bullish pin bars that have a bull close will be much stronger reversal signals than those with a bear close. Vice versa for a bearish reversal pin bar.
Figure 2: Showing a bullish pin bar in an uptrend and a bearish one in a downtrend
The bullish reversal pin bars are great indicators of the incoming profitability of the market while the bearish reversal pin bars signify the losses of the market. Acquaintance with pin bars will enable a price action trader to identify potential reversals and/or signifying a continuation depending upon the type and location.
Pin bars also occur at correction levels and main market turning points; including the falling trends, rising trends and range bound environments. Pin bars are most accurate trading indicators when they are joined with high support or resistance levels, main trend ratification, and clear formation.
Traders can make entries, exits and place stop-losses in the market simply by following the pin bars and how they form. They can enter a bullish or bearish pin bar as it breaks either the high or low of the real body depending on the direction of trading.
An effective pin bar trading strategy is vital to price action trading for identifying high probability setups. The pin bar can be traded on any time frame and from appropriate price action support and resistance levels.