Pinbar or Pinocchio bar is one of the most used market reversal candlesticks in the financial market. Traders and analysts use this candlestick to identify the market reversal from a significant zone.
Traders often use candlestick patterns as an individual trading strategy or use candlestick as an element of a trading strategy. If you can understand the formation of pinbar, you can make a decent profit from the forex market.
Moreover, this indicator works well in all timeframe from 5-minute charts to daily or weekly charts.
What is Pinbar?
In the financial market, candlestick plays an important role where traders can understand buyer’s and seller’s activity in the market.
Therefore, if we find a Pinbar from a significant level, we can easily predict the upcoming market movement. Pinbar works well in both bullish and bearish market, which represents a market reversal. Usually, there are two types of pinbar in the financial market:
- Bullish Pinbar- Bullish pinbar has a small bullish body and a long wick downside that represents sellers are taken out from the market by buyers.
- Bearish Pinbar- Bearish pinbar has a small bearish body and a long wick upside, which represent that buyers are rejected from the market by sellers.
How Pinbar Forms?
In a candlestick, there are four crucial elements- opening price, closing price, high price, and low price. In a bullish pinbar, the market opens and moves down due to selling pressure.
As a result, the price creates a bottom by moving down below the opening price. However, before candle closes the market reverse above the opening price that eliminates the sellers’ activity by a wick.
In the image above, we can see how the price is rejected by the opposite party and creates a pinbar. The bearish pinbar is almost similar to the Shooting star while the bullish pinbar is similar to the hammer candlestick.
Pros and Cons of Pinbar
Pinbar is one of the most used candlestick patterns in the financial market as it has some important among traders. However, it has some limitations also.
- One of the best reversal candlestick pattern that represents the logic behind the market movement.
- Traders can use this candlestick as a vital price action tool to increase the probability of trading.
- Pinbar from a critical support and resistance level often create a new trend in the market.
- Pinbar from a lower timeframe or a random place provides less profitable signals.
- It is often not wise to take trading decisions based on pinbar only. Besides pinbar, the behavior of trend, market levels, timeframe, etc. are also necessary.
How to Trade the Pinbar?
Pinbar trading is very profitable as it eliminates the activity of the opposite party from the market.
However, a pinbar from a significant level is more reliable than from a random place. In the image below, we can see how pinbar fails to provide a reliable signal as it was formed in a random place.
Now, see how pinbar works successfully from a significant support and resistance level.
In pinbar trading, we should follow some rules of price action to eliminate the unwanted market movement. At first, we should identify the timeframe and trading instrument.
Identify the Timeframe
Pinbar works well in all timeframe. However, the higher timeframe provides a more reliable result than the lower timeframe.
Therefore, in this trading strategy, we will focus on a 1-hour timeframe to a daily timeframe to identify the market reversal using the pinbar.
Identify the Trading Instrument
Pinbar works well in all financial markets, including forex, commodities, cryptocurrencies, and indices.
However, in the forex market, it is better to stick to the major and minor currency pairs as they have enough liquidity to provide an excellent trading opportunity.
Identify the Price Location
As we discussed earlier, pinbar works well if it forms at a significant support and resistance level. Therefore, in the pinbar trading strategy, we will do a top-bottom analysis by marking important levels from weekly to daily timeframe.
After marking those levels, we will focus on pinbar that forms on those levels only.
There are two ways to enter the trade in Pinbar. If you are an aggressive trader, you can put a buy stop above the bullish pinbar (sell stop for bearish pinbar). Once the price moves up, it will activate your trade automatically.
On the other hand, another way to enter the trade is from the 50% retracement.
In most of the cases, price moves down in a bullish pinbar (move up in a bearish pinbar) to test the 50% level. If you put a buy limit, your trade will be activated automatically once the price will come down.
The ideal stop loss level for pinbar trading is below or above the pinbar wick with 10-15 pips buffer. If your stop loss hits, it will indicate that the market may reverse or become volatile.
However, the 10-15 pips buffer often helps to keep the balance safe from the unwanted market movement.
You can set the take profit level based on the market momentum. The ideal take profit level would be the next support or resistance level.
Moreover, if the market becomes volatile at near term support or resistance level, you can book some profit and move the stop loss at breakeven.
However, any intense market pressure from the entry-level might break the new high or low. In that case, you can extend your take profit level.
Let’s summarize the pinbar trading strategy:
- Identify the Pinbar from the necessary support and resistance level.
- Enter the trade from breaking above or below the candlestick or from a 50% retracement.
- Set stop loss below or above the candle wick and set the take profit level based on the market behaviour.
In every trading strategy, managing the trade is very important. Therefore, if you can set the stop loss and take profit accurately, you can keep yourself away from the unexpected market movement.
In the forex market, we trade on probabilities. Therefore, hitting stop loss is a part of trading. If you follow a strong money management and trade management rules, you can keep yourself profitable even if the market hits the stop loss at a particular time.
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