Pin bar is a pattern of three bars (candlesticks), its appearance on the chart indicates a possible market reversal
What is a pin bar in trading and how it is formed
A pin bar is an alternation of three types of candles that give a signal that large players have appeared on the market and they intend to squeeze out small ones by buying up their liquidity.
A certain combination of candles serves as an excellent entry point marker and is therefore called the “Pinbar strategy”.
The pin bar got its name from the unusual shape of the indicator with a short body and a long shadow (or a wick) that resembles Pinocchio’s nose (“pinocchio bar”).
This nose (shadow), which stands out from the general price movement, is the main marker of a possible trend change.
In a bullish market, a pin bar is formed when the stop-loss roll ends, the sellers do not have enough liquidity to push the price even lower, and the traders who are stopped out are now going long.
This means that the impulse to buy will create a reversal in the near future and you can enter a long position.
Thus, if a trader sees a pin bar with a wick sticking out below the impulse wave, he can join the longs. If the shadow of the pin bar rises above it, he may be looking to go short.
The long wick of a pin bar in trading, like Pinocchio’s nose, demonstrates that we are being told a lie and the price direction is about to change.
A true pin bar has several markers on the chart that distinguish it from a fake one:
1. The body of an average candle does not exceed ¼ of its total length. One of the shadows is absent or very short, and the length of the second is 3 times (or more) the length of the body.
2. Candles on the sides are called “Pinocchio’s eyes”, while one of them is always “bullish”, and the second – “bearish”.
3. The long wick of the middle bar protrudes beyond the “eye” candlesticks’ patterns.
If the shadow of the middle candle does not go beyond the boundaries of the previous price, then you have a false pin bar in front of you. Trading on it is dangerous for beginners.
If you have already understood the notion “what is a pin bar in trading”, then let’s move on to explaining how to use it.
But the main thing to remember is that a pin bar is a signal for a trend reversal and a good point to enter the market. The longer the shadow of the central candle is, the more reliable the signal happens to be.