The Pin Bar: A Powerful Price Action Setup

By | February 9, 2013

As traders we have two general ways to engage financial markets.  First, we can conduct intensive research on macroeconomic drivers, fundamental news releases, and key economic data and come to a conclusion concerning the future direction of a specific financial asset; then, once the research has been conducted and a decision has been made, we enter a position.  Second, we can look at charts depicting current and historical prices of a financial asset and apply a myriad of technical indicators in order to determine what direction price may be headed in the future; then, as a result of our historical research of price, we can enter a position.

Both of these approaches to trading financial markets is legitimate, but small, private traders are at a huge disadvantage if they want to trade based on economic data.  Large hedge funds and banks have entire teams of analysts that conduct endless hours of research in order to discover possible economic trend development.  They are also paying hundreds of thousands of dollars each year for their data, and small traders are simply at a huge information disadvantage.  Thus, most private traders rely heavily, if not complete, on technical analysis in order to make trading decisions.

Technical analysis includes a broad array of technical indicators and ways to analyze price history, but one of the best kept secrets of technical analysis is a rather simple, but extremely powerful price action signal called the pin bar.  The pin bar was first coined by Martin Pring, a famous technician in his own right.  In the mid-2000’s, Pring wrote an excellent book entitled, Pring on Price Patterns, and in it Pring discusses the pin bar.

The Pin Bar

Before we delve into discussion on how to trade a pin bar, let’s take a look at one:

Basically, you can see the pin bar is a candlestick that has a long extended wick to one side with a very small body.  Pring named his candlestick pattern a pin bar after the Disney character, Pinnochio.  Pring noticed that these pin bars oftentimes formed at the tops and bottoms of moves and they tended to signify strong trend exhaustion and possible trend reversals.  Pring felt like the long upside wick was akin to Pinnochio’s nose growing when he lied.  The pin bar’s nose grows long as the candlestick lies to the market, pretending as though price is moving higher, when in reality there has been a complete reversal in price action during the period the pin bar was open.

Not All Pin Bars Are Created Equal

  • Pins must form at the top and bottoms of an extended move; when they form in the middle of consolidation, they are not nearly as reliable.
  • Pins must have a small head and long wick.  If the head is too big it is not a pin bar.  There should be a very clear difference in the length of the wick and the length of the body.

Location, Location, Location

The location of the pin bar is essential.  Ideally they should be in line with the overall currency trading trend, and they should form at areas of strong support/resistance.

Entry & Exit

Entry is always on break of nose, and stop is always just beyond tip of the wick.

Live Market Examples

The first chart pictured shows two pin bars.  You can see that both are forming in the direction of the trend, and if you were to do higher timeframe analysis on that euro, the overall trend is bullish as of October 2010.  A pin bar that forms and signals a bullish entry in an overall bull trend is an extremely reliable trade entry signal.

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5 thoughts on “The Pin Bar: A Powerful Price Action Setup

  1. price action

    The Pin Bar as mentioned is a powerful price action set up. It is such an informative post about it and gives a very insight idea about the fact that the one should be engaged with the financial markets to get along with the profitable aspects of the same.

  2. mitu

    Hi! Brahmesh
    Can u throw some light on exhaustion zone. For eg some one recently said for nf it would be 6105 and any fresh position only above 6122 on closing basis. We saw it happen. What percentage of previous move is considered for arriving at exhaustion zone.

  3. perryg

    This is one of the best candlestick patterns and I find it is a successful entry technique on all time frames. The Pin Bar is my favorite reversal pattern and have made many profits form it’s use. You also need a good exit strategy to make money with it though. Keep up the good work.

    Perry

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