Here are my top 3 techniques for trading pin bars.
These tips will help you find and trade more powerful pin bars, as well as keep you on the right track when filtering opportunities.
Here’s Technique #1...
Price-Action gurus always say the key features which determine the probability of a pin bar causing a reversal are:
1. The wick size,
2. The body size (and color),
3. The technical levels the pin has confluence with.
—in that exact order too.
Funnily enough, this is bang on. The gurus are right!
Does a large wick and confluence with multiple technical levels increase the power of a pin? Of course, I even said the same earlier!
BUT, I would argue another feature to consider is the overall size of the pin bar... Not just the wick or body size, but the overall size of the entire pin bar candle from high to low. (This is a key factor few traders mention.)
The overall candle size is crucial because of how pin bars cause price to reverse...
Remember: Before every pin bar appears, it looks like this...
A MASSIVE bullish or bearish candle, or large range candlestick (LRC), as they're better known. These candles signify that a large price change is underway... They form when the price either tanks or skyrockets... That's why they are so huge!
But that's only what they show on the surface...
The reality: Masses of retail traders are now entering trades in the same direction as the candlestick. If you've seen these candles before, you know how enticing they look... The candles make it seem like the price is heading to the MOON!! They almost beg you to jump in and get long or short.
And, for many traders, that's exactly what they do. Traders rush to enter once they see the candle form... Price swiftly rising or falling gives them a severe case of FOMO. (Fear Of Missing Out).
The traders assume the large candle indicates a substantial move is underway without them, so they enter trades in the same direction to capture the move and make a profit.
Now, like I said... Before a candlestick transforms into a pin bar, that's how it looks: Like a heavily bullish or bearish large range candle. The candle gets carved into a pin bar when the banks buy or sell to push the price in the opposite direction. This forms the wick and creates the pin bar we see.
Before a pin bar forms, then, thousands of traders are entering trades in the same direction of the candle. Its large size, coupled with their FOMO, makes it seem like the market is taking off without them.
The real question is: What will happen if the price moves AGAINST these traders? What will they do if the price suddenly REVERSES? Exit, right? The traders will be put in a loss, and many will close out.
But how do you close a losing trade? What must you do?
You must take the opposite action!
• To close a SELL trade, you must BUY back what you sold.
• To close a BUY trade, you must SELL what you bought.
If masses of traders suddenly begin closing their losing trades all at once, what effect will that have on price?
The price will move aggressively in the opposite direction!
And that, Ladies and Gents, is how every pin bar forms:
Trigger-Happy FOMO traders being forced to close their losing trades by the banks. The traders enter as they feel major FOMO from the large bullish or bearish candle. The banks then place trades, take profits, or close trades using the new orders. The banks' orders push price against the traders, forcing them to close at a loss.
The resulting move back to the open forms a long wick above or below the candle, creating a bullish or bearish pin bar.
The pin bar is the manifestation of traders closing their trades. .
Makes sense now, doesn't it?
While it may not seem like an important insight, this means the overall size of a pin bar plays a major role in whether the price will reverse; because, think about it...
Large Pin Bar = Large Number of Traders entering during its formation.
If the pin bar forms due to a steep decline, masses of traders will enter short. Thousands of traders will now close (and lose) once the price moves against them and forms the lower wick, making it more likely the price will continue in the same direction, increasing the chance of a reversal.
I guess the next question is... How do you know whether a pin bar is the right size?
Well, you can't, at least not scientifically. Since the volatility and liquidity differ between each pair, it's impossible to give a definitive answer on what the overall size of a pin bar should be to strongly indicate a potential reversal.
But here's the good news:
You can just eye up the pins and compare them...
If the overall size of a pin bar (from low to high) is small, the pin probably has a low probability of causing a major reversal...
Here's an example...
The pin bars above—way too small for trading.
Being so small means only a few thousand traders probably bought or sold when the pin bar was forming. Hence, when price moved the other way and created the wick, few traders were closing losing trades. That lack of momentum means price has a lower probability of reversing, which makes these pin bars weak reversal signals.
Use this image as a guide for future reference.
Confluence is often touted as one of the most critical concepts to understand in trading candlestick patterns...
Yet, when it comes to trading pin bars:
**Confluence really is NOT as important as everyone says.**
Here's why...
The problem with confluence isn't that it doesn't work... far from it...
Confluence is critical to finding and trading the strongest pin bars, like I showed earlier in the book.
The real problem with confluence is it's not as important as understanding:
**Why the pin bar formed.**
Take the pin below for example...
Many gurus and price action books would label the above as a high-probability bullish pin.
It has:
• A large wick,
• A small body,
• Forms at a major support level.
By anyone's standards... this pin bar should cause price to reverse.
Now, watch what happens...
After a tiny retracement, price keeps falling. Rather than initiating a large reversal, the pin could only trigger a small retracement.
Why did this seemingly strong pin bar, with all its features and confluence, fail to generate even a small reversal?
The answer: Because the pin formed from the banks taking profits.
Like I said earlier... Pin bars never form equal: Both in terms of construction and the reason behind their formation.
Pin bars can develop for three reasons:
• Taking profits,
• Closing trades,
• Placing trades.
Most pin bars, like the bullish pin above, develop from banks taking profits; the banks generate profits all the time, hence profit-taking is required 24/7. These pin bars, regardless of confluence, have a LOW probability of being successful.
The reason why is simple: After the banks take profits, they want the price to continue in the same direction. The banks DO NOT want the price moving the other way, the direction of the pin bar. The banks DO WANT the price to continue in their direction to make more money.
That's why the pin in the image failed: After the banks took profits, they let the price continue falling. The fact the pin bar had a large wick and formed at a decent support level... completely irrelevant! The banks DID NOT want the price to rise; they want it to continue lower.
Does this mean confluence is useless then? Not at all...
For pinpointing where the price may reverse in the future, it’s still important. It just means for candlestick patterns, confluence always comes secondary to WHY the pattern has formed.
Pin Bars Revealed - page 50
That is, and always will be, the #1 factor. Everything else:
• Wick size,
• Confluence,
• Body size,
• Body type,
All comes secondary; because, why the pattern formed will determine whether the pattern will cause the price to reverse.
Most traders already grasp that they should be on the lookout for pin bars with large wicks—wicks around at least 3x the size of the body.
You hear it all the time...
I'm not here to repeat that, again.
However, what I am here to state is this...
Pin bars with GIANT wicks, wicks which so clearly stand out from the surrounding price action that they're obvious from a single glance, almost always trigger a price reversal.
Here's an example for you...
Here's a typical example of what's often considered a "big-wick" pin bar...
Notice how the wick on this bearish pin bar is roughly three times the size of the body. This is the textbook definition of a large pin bar, often touted by price action gurus as the ideal size for a high-probability reversal setup.
But prepare to be amazed...
Let me show you what I really mean by a "giant" wick...
Whoa, what a difference!
You won't see pins like this every day, will you?
Pin bars with these massive, eye-catching wicks that stick out like a sore thumb from the surrounding price action almost always signal a powerful reversal.
But why?
It all comes down to the traders who enter the market while the pin is forming.
These traders typically:
1) Jump in when the pin looks like a large, promising candle.
2) Panic when the price starts moving against them.
3) Close their losing trades as price swings back to its opening point.
Essentially, these traders are getting stopped out, and their frantic exits create the long wick
on the pin bar.
Here's the key takeaway:
The larger the initial move that creates the pin bar, the more likely price will reverse. A bigger move attracts more traders, and when the price turns against them, their mass exodus fuels a powerful reversal.
Think of it like this:
A pin bar with a giant wick means thousands of traders got trapped on the wrong side of the market. When they rush to close their positions, it creates immense pressure in the opposite direction, leading to a strong reversal.
Take the example above:
The massive wick indicates a huge influx of short sellers who got caught off guard. As they scrambled to buy back their positions to close their losing trades, the buying pressure skyrocketed, creating that huge wick and ultimately leading to a powerful reversal.
The Bottom Line:
Wick size is a direct reflection of the number of traders exiting their positions, and a massive wick signals a high probability of a major reversal.