Where Traders Go Wrong With the Pin Bar Reversal

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The Pin Bar reversal is without a doubt one of the most powerful and reliable price action trading signals that can be traded across many different markets and time frames. The Pin Bar is very simple to identify and with most new traders being able to quickly learn to spot this two candle formation. The Pin Bar really can be a very high probability trading signal once the trader has perfected it and learnt under which circumstances they should be traded and the others to which is should be avoided.

Recently I have received a lot of emails from traders discussing Pin Bar reversals or what they term Pin Bar reversals that are leading them to get into trouble. There are major common problems with the Pin Bars they are entering which I have now realised is a really common pattern among traders  trading Pin Bars in the trading community which has led to me make this article today to hopefully help some traders back on track with this super price action signal.

The Three Major Problems I am Noticing:

  • Trading Pin Bars that don’t meet the basic Pin Bar criteria.
  • Trading Pin Bars from incorrect areas on the chart which is getting traders into trouble
  • The Pin Bars are not sticking out and away from all other price and have no room to move

 

The best A+ high probability Pin Bar’s all have the same criteria, but to first qualify as a Pin Bar they must meet some very basic key points which are;

A Pin Bar must have:

–  Open and close within previous candle

–  Candle wick minimum 3 times the length of the candle body

–  Long nose protruding from all other candles (must stick out from all other candles)

 

Bullish Pin Bar Example

Bearish Pin Bar Example

 

Trading Pin Bars When They Don’t Meet Basic Pin Bar Criteria

The criteria that the Pin Bar must meet is pretty simple, but what I am finding is people are trading what they are thinking are Pin Bars because they are unaware of what the true criteria for a pin bar is (hence my article). They have either been taught that way or they have watched other traders in forums do it that way or they have just picked it up along the way. They are then placing losing trades because of these false Pin Bars and wondering what the problem is.

The rules for a Pin Bar are clear-cut and they cannot be fudged. They either meet the criteria or they do not. For example; the price either opens or closes within the previous candle or it does not. There are no if’s or butts and this is exactly what traders need for their trading. All traders need a clearly defined trading method that they can go into the markets with so they can clearly define whether it is or is not a signal that meets or does not meet their trading criteria.

 

Trading Pin Bars from Incorrect Areas on the Chart, Which is Getting Traders into Trouble

This is the most common and also the most misunderstood. This is also the major issue that gets traders into trouble the most and what costs traders the most losing trades. If traders don’t fully understand this, they will continue go on struggling with the pin bar until they fully have a firm understanding of it. The first major point traders have to understand is;

–          The Pin Bar is a reversal signal and NOT a continuation!

What this basically means is that the Pin Bar has to be used ONLY to pick price to reverse. It is a reversal signal, hence it’s full name is the “Pin Bar Reversal”. A major reason why traders get themselves into all sorts of pickles is because they try to play the pin bar as a continuation signal and it is not.

To play the pin bar as a reversal it means we have to pick price to reverse and from swing points. If we are to play a bearish pin bar and pick price to move lower we first need to have seen price moved higher so we can pick price to reverse. We can’t play a bearish pin bar reversal signal if price has not first moved higher. An example of this scenario is below. You will notice how price first moves higher and then after this price forms a bearish Pin Bar. This pin bar is picking price to reverse lower.

Pin Bar Formed at High

 

An example of what not to do and what I see a lot of is below. On this chart below the pin bar is traded as a continuation rather than as a reversal as all pin bars should be. This pin bar is a bearish pin bar the same as the pin bar above, but unlike the pin bar above, this pin has not been played after price has made a move higher and picked to reverse price. This pin bar has been played to see if price can continue to move lower. The trader who plays this pin bar will be selling low and hoping to buy back lower.

Forex is the same as in any business in life. To make money you must buy cheap and sell expensive or buy low and sell high and it is the same on the charts with Forex pairs.

continuation pin bar - no no

 

Below is another example of what not to do, but this time with a bullish Pin Bar. The other problem that traders will encounter when they trade pin bars as continuations rather than as reversals is that they will nearly always be trading straight back into the recent support or resistance area and that is never a smart play. Traders want to be trading away from support and resistance and not into them.

You will notice with this chart below that it had three pin bars that were all continuations rather than reversals. Because they were continuations they had the major problem of trading straight back into the recent highs which were the near term resistance that is nearly always a problem when trading pin bars as continuations. As you can see on the chart; this resistance held and pushed price lower.

 

 3x continuation pin bars

  

The Pin Bars Are Not Sticking Out and Away From All Other Price and Have no Room to Move

The very best pin bars stick out and away from all other price. They are not hidden away and back in traffic. A large myth with new traders are they want to find the smallest pin bars as they can because then it will give them the smallest stop and the biggest risk reward.

What this fails to acknowledge is that the bigger the rejection and the bigger the pin bar the more powerful the signal. The best pin bars are the large and obvious candles that as soon as you flick over to your chart you notice them. These are the pin bars that stick out like a sore thumb right there on the screen screaming at you to trade them. They stick right out and away from all other price with their large noses protruding well away from all other price. All good pins need to have to have their noses sticking out and away from all other price and if they don’t, then they do not fit the basic first three criteria.

The chart below is a great example of a Pin Bar that sticks out and away from all other price. Firstly, notice how it opens and closes within the previous candle and then notice how price has moved higher before forming the pin bar. This pin bar is being played as a reversal which means it has space and is a pin bar valid trade. Lastly, notice how the nose of the pin protrudes right up and away from all other price and sticks right out.

 A+ high probability pin bar

The chart below is a common chart of a pin bar that I often see traders playing. Notice the difference between the pin bar above and the pin bar below. The pin bar above is large and obvious. It sticks out and away from all other price and has room to move. The pin bar below is small and in the middle of price. It is a bit of an indecision candle and does not stick out from price at all. There is a clear difference between the two setups.

 pin doesn't stick out

 

Discipline, Sticking to the Rules & Not Bending Candles to See What You Want to See

Learning how to do something is not always the hardest part to becoming successful at it. The pin bar can be a great trading setup for a price action trader to have in their arsenal, but if the trader is going to use it in the long-term they are going to have to have set some strict guidelines.

As mentioned above for a trader to succeed long-term they need a clearly defined trading strategy so that they can go into the market and know exactly what is and is not a valid trading setup under their trading criteria. As discussed in this article there are some pretty simple and clear-cut rules with the pin bar.

Once most people understand these rules it is not the understanding they struggle with, it is having the discipline to follow the rules and only trade when the trading criteria is met. Whereas the professional trader will sit and wait for the market to come to them and produce exactly the signal that they are waiting for, the amateur will go running off into the market like a headless chook pleading for the market to give them signals because they just want to be in any trade the market will give them.

This is the time that instead of waiting for the market to give them the valid pin bar, the amateur trader will instead start to “bend” and “twist” all sorts of different candles to make a pin bar. Before you know it, the amateur trader is in a bunch of different trades of what they are calling “Pin Bar” trades that are nothing even close to pin bar trades and this is where it gets back to having the discipline to follow the plan and rule set.

 

Recap

Anyone who has ever traded the Pin Bar will know that it can be a really powerful and reliable price action trading signal. Of course not all pin bars are created equal and of course we do not trade the pin bar by itself. The pin bar is just one candle on a chart full of many candles and we need to take into account the whole price action story when trading the pin bar. If you want help becoming a more confident trader check out the member’s lifetime price action course page. You can also contact me at any time with anything you need or any questions HERE.

Safe trading,

Johnathon

 

Related Forex Trading Articles & Videos

Introduction to Trading The Pin Bar

Introduction to Trading The Engulfing bar

Where Traders Go Wrong With the Pin Bar Reversal was last modified: March 8th, 2014 by Johnathon Fox
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About Johnathon Fox

Johnathon Fox is a professional Forex and Futures trader who also acts as a mentor and coach to thousands of aspiring traders from countries right around the world. Johnathon specialises in helping traders reach their full trading potential by helping them master the art of price action trading and correct money management techniques. To learn more about how you can become a student of Johnathon’s and learn the strategies he uses, then check out the Forex School Online Lifetime Membership

Comments

  1. great post

  2. nice expalanation

  3. Dngles says:

    This makes a lot of sense, thank u!

  4. Jamee says:

    Thank you Johnathon. I am one of the people who have sent you email and who you have really helped and you have helped me out of site with these pin bars. I really use to struggle with them and now I realise they weren’t even proper pin bars! Thanks again.

  5. Arivnd says:

    Could email this document I will would to print it and have refernece

  6. Really nice article Jon. Thank u for all your work.

  7. it's really not about a perfection of a Pin Bar… nor perfection of any another candle pattern for that matter…you change a tf from 1 hr to 1hr:05min and your perfect Pin Bar will not be perfect anymore….it will look completely different…the sooner you guys realize that the better for your trading…the not so perfect Pin Bar in the right context will be much better than some other perfect looking Pin Bar…ps. I mean it's enough to change the tf by couple minutes to realize that the whole trading is not about trading candle patterns and not about looking for perfect candle patterns… candles are a tool…but understanding the traders' decision that are hidden in the background of the candles is the true nature of this game…

    • Hello Greg,
      Reall great comments, Thanks. Some of your points are bang on the mark and I agree with them especially with it being super important where trades are entered hence why a ton of my articles/videos are on the price action story and this very article spends over half of it on discussing how traders need to to stop entering pin bars into spots and then getting in trouble…….., but what you have also got to realise at the same time is all traders need a clearly defined trading rule set. Every trader needs a set of rules that they can go into the market that sets out clear parameters of what is and is not a trade and as for many this is causing them grief for the pin bar at the moment. The Pin Bar and how it has formed can give us great insight into the order flow of the market. Combining this with the rest of the price action story and we can have a really solid price action setups, but we need to have a rule set. We can’t just call anything a pin bar and twist and turn anything to make anything we want.

      Safe trading,

      Johnathon

      • hosny sadek says:

        thanks a lot for your teaching and I hope to be in connection .and I`m so honoured with reading your writings

  8. Pete willis says:

    Thanks for the article Johnathon. Greg Swaloski above posted an interesting comment which I also wonder about and would be interested to see a reply from you ,cheers mate

  9. Your post is useful to me, it's nice! thank you.

  10. Mohammad Umair Baig says:

    ThanksVery Informative

  11. tunji says:

    Nice stuff!

  12. Naushad Ali Vazir says:

    Good Info one can learn a lot from here

  13. Thanks////Now I see my mistakes!

  14. Excellent!
    Great explanation.

  15. Great article. Really makes sense

  16. Is it true that pin bars do not rely on whether or not they are filled to be considered reversal setups? I was told some time ago that whether the color of the bar is bullish or bearish isn’t important. They could equally indicate a reversal. Is this true?

    • The points I have covered above such as; the price action story, where the pin has formed on the chart, if the pin is with the trend or against, if the pin is sticking out and away from price, if the pin is large or small, is the pin making false break, is pin rejecting key support/resistance etc etc are far more important considerations that if the pin bar closes bullish or bearish.

      In 99% of cases it does not matter if the pin closes bullish or of it closes bearish. The only time it would matter is if there was a key support or resistance level around and we wanted to see price close above this key level to know that price had closed above this level so that we were not going to get trapped below a key level, but just for general pin bars the close does not matter.

      Johnathon

  17. so happy to read your comment . but plz if u know the more about the trading strategies and the best ways of trading would you be in connection with me .thanks

  18. I have been relief because i have concluded that price action sometime give fake signals as other lagging indicators does. but with this understanding presented i can now trade better. thanks a lot sir…

  19. sanford says:

    wonderful put up, very informative. I wonder why the other
    experts of this sector don’t understand this. You must
    proceed your writing. I am confident, you have a huge readers’ base already!

  20. Rosey says:

    Johnathon,

    Does the “pin bar” need to open and close within the body of the preceding candle?

    • Hello Rosey,

      please refer to the top of the article and the pin bars criteria for what the pin bar must have. If still have any questions or confusion then just let me know.

      Johnathon

  21. Hey Johnathon, when you say a pin bar MUST have the criteria you mentioned, does this mean that you measure the wick and the body of a potential pin bar, and strictly trade only the ones, which have 3 times longer wick than the body, or is there some buffer zone, if the wick is only 2.98 times longer than the body for example?
    Best regards

  22. Martin says:

    Hey Johnathon, are there any rules regarding the nose of the pin bar?

    • Hello Martin,

      yes there are. There are three basic criteria for the pin bar for the pin bar to be valid and to be a basic, valid pin bar before we start lookng at other things like the price action story and major levels, space and management etc

      Please read the basic pin bar lesson here: http://www.forexschoolonline.com/pinbar/ and feel free to watch the pin bar trading videos.

      Johnathon

  23. wealth says:

    Hello Johnathon

    Can I use FXCM for PA trading?
    I tot dey have d correct NY close?

  24. Hi, this is a great explanation of the pin bar. Thanks. I’ve noticed that traders who trade most price action and pin bars specifically don’t use any indicators? Any idea why? I don’t really understand why that is. For example looking for pin bar indicators I came across an indicator that detects pin bars as well as dojis on manual trend lines or support and resistance lines. The indicator will also follow pin bar rules before it issues a signal. Do you think using such an indicator would be useful?

    • On the whole the reason many people are moving towards price action to begin with is because indicators are causing mass confusion, mass complication and they want to begin to understand why price moves the way it does, how the market is being created and what the reasons are for certain moves and levels.

      That’s not to say that there are traders making money with indicators and doing their technical analysis thing; of course there are. Just different way to skin a cat.

  25. John Henson says:

    Hi Jonathon,
    Regarding the examples and the steadfast sticking to Pins as reversals, there is a situation where big pins appear in a trend. i.e continuation. Of course you don’t know this in the moment, hence need to wait and see two things. First you will see the top of the pin go to, or almost to, a previous minor price action S&R, and no further. The second part is the following candle, that should be in the direction of the established trend. The entry point is beyond the candle before the pin.

    My point is illustrated in your second diagram that showed two down candles Imagine if the first down candle after the pin was reveresed and an up candle. The reason price continues is that there may have been very little volume in the pin, except at the top of the pin, so the institutions target the volume and drive toward it.

    The likelihood of two side-by-side pins in a trend is as rare as…. Summarising, it is knowing the rest of the story.

    Interested in your comment. Thanks for all the beginner stuff.

  26. Hi John,

    thank you so much for your comments!

    I have read it multiple times, but I am having a tricky time trying to reply for you.

    Maybe if you could explain more?

  27. Really love pin bars.. it’s something I have been following for years with my trading. My preferred set up a pin bar that tries to squeeze a previous high or low, and is sharply rejected.. always a good set up for a few pips. Usually these set ups allow you to get a tight stop, and you’re able to move it down to breakeven pretty fast.

  28. John Henson says:

    Johnathon,

    I am referring to what people would say is a failed pin bar.

    The pin bar is actually, as some would day, a stop hunt. It isn’t and is in fact a hunt for volume. After the pin, there are a few candles basically to attract those who expect the reversal, but really its to get some extra volume in the wrong direction before they take price back towards the discovered volume.

    Being aware of this possibility means those who suddenly have an element of doubt as pin bar as reversal can have their ah ha moment, as price continues. It isn’t really a continuation pattern, though you might think so.

    It maybe a good trade but depends on how far price has run already, if there is a previous zone down there, where you might decide just to leave alone and instead wait for price to creep its way there – then trade the reversal. Or you may take the trade but don’t expect a big run, though it could do and blast through a zone simply because it had volume the market needed.

    At least traders will realise that they were being played this time and didn’t either fall into a trap or have their cnfidence dented.

    I hope this helps.

    My point being, if traders are stuck into thinking that the pin reversal failed, and losing faith, they can rationalise what was going on.

  29. John Henson says:

    Dear Johnathon,

    I replied earlier to clarify my point and subsequently I found an example on your lesson “Supply and Demand – The Key to Where Price Moves”.
    If you examine the RHS of the first candle diagramin your article you will see a pin that meets the criteria for a reversal. It hits a level of support, and subsequently there is some heavy price action,

    Big candles pound against the level set at the pin low, and after several attempts blasts through.

    It is not a perfect reversal pin because it doesn’t close within the previous candle, but you get the idea. (If the chart was viewed on a different timescale the pin might have closed inside the previous candle). I return to my point, that people need to interpret what was going on – in this case testing for volume (probably through an area of very little volume from where the pin launced until it hit big volume). Ascribing some voodoo answer “it failed and it sucks” plays with your mind, but knowing what is happened creates calmness.

  30. Hi John,

    nice comment. I can sort of see what you are trying to mix around in your head and are coming up with.

    The pin is a false break, and it gets traders going one way and snapping back another. I can see what you are saying about ‘volume’, but when you say volume are you saying volume of orders or supply demand? This part confused me a little?

    You talk about “Volume” 4x times in your comments, so it’s clearly something you focus on in your trading a lot. I am not sure if you trade other markets or are a stock trader etc where volume if often a huge factor, but Forex is a not a centralized market and the volume you see is not the volume I see. The broker who you are using to trader and get quotes from and their order pool could be completely different from mine which is why sometimes in my student forum even though we all use the exact same NY close charts they may be 1 or 2 pips different at the end of the day.

    Johnathon

  31. John Henson says:

    Johnathon.

    My use of volume is in the virtual sense and more accurately, interest in that price whether demand or supply depending on the direction.

    There could be a reason either that a market maker had to dump some to close out a real obligation by a certain time. Other market makers might have read the situation and left nothing for them to secure and the obligated entity just had to dispose the scrag end for a bad price. My sense is that there is a real reason for the spike followed by retracement then price going to and surpassing the spike extreme. The reason being the entity had to, and nothing to do with an always prefectly fluid and deep market. Stuff happens. There is no reason that the market should always satisfy what people need to do commercially outside the market. Thats the clue, there is an outside the forex market that the forex market is supposed to service.

  32. Roy Peters says:

    Excellent points Johnathon.

    I use pin bars all the time especially at swing points. I have found that pins forming on higher time frames are more accurate than say 30 mins time frame.

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