Trading Pin Bar Reversal

Trading Pin Bar Reversal

A picture paints a thousands words, and that's how we should view our charts where each candle  describes what's currently happening with price as well as it's history. Candles are always born neutral, after birth they can grow to become either bearish or bullish. Now if there's a candle that can describe exactly who won the battle between bears and bulls it our famous pin bar. In the next few examples I will discuss charts with EMA, Support and resistance, Trend lines & Swing High & Lows. Please feel free to seek examples using other methods and indicators with pin bars.

Horizontal Support & Resistance

In the chart above we can see that there is a strong horizontal  level / zone, where on numerous  occasions price action found either support or resistance. In the later part of the chart a strong breakout of this level to the upside occurred and we can see that horizontal level previously  resistance now has become support. Now that price has broken out we can wait for a pullback back to this horizontal level for a price action signal to enter the market and follow the momentum to the upside.

EMA

This chart we can see that price was ranging for a while bouncing off strong support. A pin bar signal formed where we can see price moved aggressively to the upside. Please note when taking a reversal candle or counter trend trade make sure that the candle closes in the direction of the trade, so for this example the first pin bar would not be traded as it didn't close as a bullish pin bar and it wasn't the best looking pin bar as it looked like more of a indecision candle. The next 2 highlighted pin bars are tradeable where we can see price rejecting EMA off short term support.

Trend Lines

In this chart we can see a strong uptrend is in place where swing lows are being formed as price moves up. On the chart I have highlighted a valid pin bar allowing us to enter the market.


Conclusion

The Pin Bar Candlestick reversal pattern is one that not only happens to occur quite frequently, it is also one of the most powerful reversal patterns available to a forex trader. This pattern can be traded on any time frame and is best traded from major price action levels like previous support and resistance or pivot points and the like. The better the Pin Bar formation the higher the probability and the better the location the higher the probability. Only take the best Pin Bars in the best locations and the rewards will speak for themselves.

Identifying Trend Direction

The term "Trade with the trend" or " The Trend is your friend" is often used in the world of trading but many people struggle to identify trend direction. The reason that people struggle to identify trend direction is due to the fact that financial instruments don't move in a straight line and the trend may be different depending on which time frame you viewing price.

To identify a new trend I use dynamic support and resistance as well as trend lines bounces and in both cases we will need to know how to use swing highs and swing lows effectively to call the direction correctly. Swing high or low is when price is moving a certain direction and then pulls back or has a pause before resuming in the direction it was moving in. Below are examples of a swing high and swing low candle formation.

  

A swing high is formed when the high of a price is greater than a given number of highs positioned around it. 

A swing low is created when a low is lower than any  other point over a given time period.

Now that we are able to identify what a swing high and a swing low is we can now apply this to our charts in the following manner. In the below chart we can see how the swing highs and lows rejected or bounced off the EMA also know as the dynamic support and resistance.

In the below diagram a trend can be seen by drawing a line and joining the swing high and lows. In this example the swing lows where joined and now we can clearly identify the trend direction. A trend line is only a trend line if there are 2 or more touches. In the same diagram I left the EMA indicators on the chart so that you can see how the swing lows react almost the same way to the trend line drawn.
 
To draw trend lines I suggest you zoom out into the larger time frames and draw 1 or 2 obvious trend lines on each chart. Example lets say you are working on the 4H chart where a valid price action signal is present and you want to identify the trend. Start by zooming out to the weekly time frame drawing the most obvious trend lines on the chart then work you way on each time frame until you get to the 4H. These trend lines will indicate true valid key levels.

The one thing we will never know is when a new trend starts or finishes therefore we should wait for  market to confirm the new bias. In the case with trend lines if price breaks the trend line we can say that a new trend maybe forming, however a trend line needs 2 or more touches to confirm a new trend is in place. The same could be said about dynamic support and resistance.  In both these cases we can say that the second retracement are always important after a new trend.

Now that we have the tools or methods in identifying a trend, combing this with horizontal support & resistance levels as well as a valid price action signal we can confidently enter the market with a high probability trade.