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Trading Strategy: The Pin Bar Strategy
The foreign exchange (forex) is the world’s most liquid financial market, turning over a staggering $5.3 trillion in daily volume.[1] This has made the market a big attraction to traders from around the globe.
We started introducing you to trading strategies with the breakout strategy this time learn how to use the pin bar trading strategy.
What is the pin bar trading strategy?
The pin bar trading strategy is easy to visualize because it has an obvious pattern.
A pin bar is a single candlestick setup which allows traders to anticipate a potential reversal in the market. A pin bar is said to be elongated when its wick sticks out from price action.
Traders usually look for one-sided wicks that are bigger than the size of the candlestick body.
How much bigger? Although this may vary, wicks that are twice the size of the candlestick body are usually ideal.
Once this wick is identified, market participants look for the momentum that created it. This allows them to determine a reversal in the market.
If a trader identifies a long wick sticking out below price action, they may choose to “go long” on that pair. In this case, the wick shows a potential reversal to the upside.
In the case of a long wick sticking out above price action, traders often look to “short” the market.[2] In this case, the wick shows a potential reversal to the downside.
Overview of the pin bar strategy
The pin bar strategy is based on a simple, yet proven assumption that forex pairs (and other assets) come into resistance during a rally, but are often able to break through it.
When this occurs, the former resistance becomes the new support. Once the market finds support at a former resistance, a bullish pin bar is formed in the process.[3]
The pin bar set up is an easy way to visualize trend reversals in the market. If used right it may be your ticket to more successful trades in the future.
Sources
[1] Gregory McLeod (23 January 2014). “Forex Market Size: A Traders Advantage.” DailyFX.
[2] James Stanley (27 April 2012). “How to Trade Fake Pin Bars.” DailyFX.
[3] Dailypriceaction.com. Forex Trading Strategies for Beginners.
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