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Not sure when a trend reversal might occur? Learn how to use Pin Bars. Pin Bar
In the world of technical analysis, there are several candlestick formations that traders consider to be highly reliable signals of a possible market reversal. One of the best known and most widely used is the Pin Bar. Although it is only a single candlestick, when used correctly, it carries important information about a possible change in price. But what should you look out for, and when is the probability of success highest?
What is Pin Bar?
When viewing price movements using a candlestick chart, it may seem at first glance that these are random clusters of shapes, but the opposite is true. In this strategy, we will focus on one specific type of candlestick – the Pin Bar. This type of candlestick is characterized by a long shadow and a small body. The body is located near one end of the candlestick, which means that the opening and closing prices are very close to the maximum or minimum values for the given period.
To properly understand the essence of this candle, it is also necessary to understand how it is formed. Each candle is formed during a specific time interval that you choose. The attached chart above is a 15m chart, which means that each candle represents exactly 15 minutes of price development.
To create a Pin Bar, the price must first rise or fall and then repeat the same movement in the opposite direction, which represents the potential for a trend reversal. During impulsive movements in one direction, candles are visible with long bodies and short, ideally no shadows.
Types of Pin Bars
In relation to the attached charts, it is crucial to distinguish between bearish and bullish Pin Bars. A bearish context indicates a candle with a long shadow at the top, while the potential for a bullish trend to begin is indicated by a candle with a long shadow below the body.
Where does the Pin Bar carry the most weight?
Although a Pin Bar can occur anywhere, it is most reliable when combined with key resistance and support zones. For example, if a bullish Pin Bar forms at a strong support level in a discount zone, i.e., below the 0.5 Fibonacci level, its signal is stronger because it shows that the price perceives the bullish parameter positively.
How to trade according to Pin Bar?
Beginners should first understand that Pin Bar itself is not a guarantee of success. As we described above, its formation should take place within a broader technical context, and it is important to monitor the price reaction after its formation for final confirmation of the trading position.
Example: Within a bullish trend, the price fell below the Fibonacci level of 0.5, which created an ideal backdrop for buying at a favorable price. The next step was to determine the support level. After confirming the Pin Bar, you bought the first half of the planned volume and placed a Stop Loss below its shadow. You placed the second half when a sufficiently strong bullish candle without long shadows was formed. Don't forget to have a predetermined Take Profit level.
Conclusion
Amidst the chaos of candlestick charts, there are ways to organize trading ideas using candlestick formations, one of the leading ones being the Pin Bar. The key remains a combination of the broader market context and the Pin Bar itself, which serves as the final confirmation of a trading idea.