Trading Pin Bars for Sats & Pips

Pin bars –  Surely one of the most reliable candle formations for predicting potential trend reversals and an age-old go-to for many forex traders and now, crypto traders alike.

So in this UTGU guide, we’re going to deep dive into how you can develop your own pin bar trading strategy using some of the info we’ll be sharing here.

Fistly though… what is a pin bar?

Looking at the pin bar, it’s pretty self-explanatory what it is and represents, right? Well just in case you aren’t aware, we’ll fill you in.

A pin bar is an elongated wick that “sticks out” from price action and represents that there was a fight between the bulls and bears and when we see these elongated wicks sticking out from price action, we can look for the momentum that created the long wick to continue be looking for a reversal.

They are identified by the following:

• Small top or bottom wick (Depending on price action at the time)

• A Small body

• Long top or bottom wick (Again, depending on price action)

The “small wick” isn’t as important as the other two parts of a pin bar and sometimes won’t even be found on a pin bar. As long as the body and long wick are in play, don’t put too much emphasis on making sure the small wick is exact as pictured below. 

The “body” of course, represents the open and closing price during that candles time frame (5,10,15,30min) and so on. When it comes to pin bars, the smaller the body, the better and it should be located towards the end of the wick.

The  “long wick“, of the pin bar should be at least 2/3 the length of the entire bar itself. In the case of looking for reversals, the longer the better, but as long as it makes up 2/3 of the overall bar length from end to end, it’s valid.

So, how do we identify  and trade these suckers? 

Great question, because in order to make sats or pips, we’ve got to know how to trade these things right? So let’s get right into it…

Locations matters when it comes to pin bars so don’t get fooled into thinking a reversal could be in play every time we see something that looks like (or is) an actual pin bar on our charts. There are a few different types of pin bars we need to be on the lookout for and these so-called “fake pinbars” that often catch traders out who based their decisions on these impostor candles.

Let’s take a look at the basics first

Bullish Reversal pin bars – you will find at the end of a bearish trend (or impulse wave), in which the long wick at the bottom of the bar will go below the overall price action and once closed and identified, will provide a nice long opportunity. If you don’t fully trust yourself to enter once the pin bar has been identified, simply wait for confirmation in the close of proceeding candles to the upside.

Bearish Reversal pin bars – you guessed it, will occur at the top of a bullish trend (or impulse) in which the top long wick, will go above the price action, signifying a potential price reversal, often accompanied by higher selling volume and the proceeding candles closing bearishly.

Pretty simple stuff, huh?

Pictured: Bullish pin bar set up has all the features mentioned above, which would make a good area to long

Pictured: Bearish pin bar at the top of an uptrend, proceeded by bearish price action. 

From the top image above, we can see the obvious overall bearish trend that is in play. At the bottom of this bearish trend, we see and confirm that a bullish pin bar has been printed and the reversal confirmed, with bullish price action proceeding it.

Our long wick has broken well below the price action, the following candle is a bullish engulfing, giving is confirmation that a long position might not be a bad play.

Our bottom image shows the opposite side of this with the pin bar occurring at the top of a bullish run. 

Unfortunately, the bull run is over, confirmed by a bearish pin bar and the long wick peering well over the overall price action, followed by significant moves to the downside.. shorting here would be the play. 

But wait… there’s more.

Pin bars aren’t always used in the context of reversals… They can also go WITH trend

This is where things get a little more complicated and where we need to have our wits above us to ensure we aren’t placing trades in the opposite direction of the overall trend and losing pips or sats. 

What about “Fake” pin bars. 

Another way savvy traders get caught out is with “fake” pin bars. These are the types of pin bars that don’t go with overall price action but also go against the overall trend.

From this, we can rest assured that this isn’t a valid signal and wouldn’t be placing any trades because of it. As we mentioned above, once these pin bars occur, we can wait until further candles close to confirm whether to enter a position or not.

Looking Left For Confirmation When Trading Pin Bars.

When trading a pin bar counter to, or against a dominant trend, it’s widely accepted that a trader should do so from a key chart level of support or resistance.

The key level adds extra ‘weight’ to the pin bar pattern, just as it does with counter-trend inside bar patterns. Any time you see a point in the market where price initiated a significant move either up or down, that is a key level to watch for pin bar reversals.

Where to Place Your Stop Loss on Pin Bar Trades

Just because we’re not trading a wedge, flag or other types of trading formations, it’s still equally as important to ensure that stop losses are in place to preserve capital. 

When entering the market on a pin bar patter, it’s appropriate to place your stop loss right above or below the longer candlewick of the pattern. The distance between the entry-level and the end of the long wick is the approx distance that should be allowed for the trade to play out. 

When to Take Profit

Since we all know our level of support and resistance so well, we’re going to perfectly pair that with our new pin bar trading strategy to find the best levels to take profit.

As we say a lot inside UTG, having a solid strategy is like layering a cake or putting together a jigsaw puzzle. We layer on all of our elements first, before getting to the top part of the cake and that’s why before we chart most pairs, we start with our support and resistance levels.

This time is no different, first, we want to ensure that our S&R levels are drawn as this will give us a solid idea of where to take profit after our successful pin bar trade.

Once this is done, you can take it further by looking for additional, smaller time frame S&R levels, to ensure you don’t miss any key levels that might affect your set up.

From the image above you can see it’s a pretty basic take profit strategy and the reason we would place our take profit just above support is in case the market turns just before and we miss our opportunity to lock in profits. 

Once you become more confident with your strategy, you may want to let the trade right and simply bring your stop loss down as the trade runs to see how it turns out.