Forex traders use a variety of candlestick patterns to make their trading decisions. Pin bars or ‘Pinnochio Bars’ are one such pattern that can be used on charts of time frames of one hour, four hours or daily charts.
The term Pin Bar was first used by a technical analyst Martin Pring in his book on Price Patterns. This particular candlestick formulation has been found to be capable of offering reliable signals, indicative of the reversal of an ongoing or current trend.
But the real benefit of the pin bars strategy can be derived only when the signals are identified properly and if they confirm the trends indicated by other popular indicators like the support and the resistance levels, trend lines, Fibonacci retracement levels. So, one should avoid using these candlestick patterns in isolation and use them in combination with other technical indicators.
Using pin bars can be a highly useful strategy for forex traders who are new to this market and do not wish to get scalped when dealing in small duration trades. However, if you wish to derive the maximum benefit of using these patterns, it is advisable to combine them with other signals that confirm the trend suggested by the pin bars. Let’s understand the concept of pin bars and the signals indicated by them a little better.
A pin bar refers to a candlestick chart depicting a reversal of the market trend. It includes a candlestick with a long wick in one direction and a small body. The bar was named Pinocchio, after the puppet whose nose grew longer every time he lied. This was because the nose tells us that the market is lying and the trend that is visible is going to reverse. The length of a pin bar indicates the elongating nose of Pinocchio, but a true signal is visible only if the length of wick is 3-5 times the length of the body.
Some other features that will help you identify a true pin bar are:
- It has a long wick on one side and small and no wick on the other side of the body.
- The wick is either the same size as the previous candle or is bigger.
- The body must be on one end of the wick, thus making the bar looking like a hammer.
- If the open and close of the nose bar are located in the bottom 1/4th section of the bar, it represents a bearish scenario. In contrast, if the open and the close of the nose are located in the top 1/4th section of the bar, it signifies a bullish scenario.
The location of a pin bar is very important before using it to plan your trading strategy. Always look at pin bars that form at the top and bottom of moves, and avoid bars that occur in the middle of consolidation or a sideways market. A good pin bar should form at a key area of support or resistance identified by the common methods of technical analysis like the trend lines, the horizontal lines and the Fibonacci levels.