Pin Bars – Complete Strategy Guide

Pin bars are an EXTREMELY powerful trading pattern when the appropriate context is applied.

I think a lot of trader’s learn about pin bars and other candlestick patterns when they’re new to trading and think they’re useless.

Don’t always get caught up on the hype of some flashy new indicator.

I’ve been trading for 20 years and I still use pin bars in my analysis and some of my strategies.

They’re a very simple candlestick patterns but when paired with solid context they can foreshadow large market reversals.

What is a Pin Bar

A pin bar is a single candlestick with a long tail (wick) who’s price action demonstrates a rejection of a price level and reversal in price closing near its high (bullish pin bar) or low (bearish pin bar) for a user defined session

You can find pin bars using a bar chart or candle stick chart on any time frame in any market including Crypto, Forex, Stocks, Futures, and Options.

There’s several different types of pin bars, let’s get started with some of the basics.

Bullish Pin Bars form when sellers start the session in control but price reaches a level that’s rejected and buyers take over and dominate the remainder of the session closing out near or at highs.

Bearish Pin Bars form when buyers start the session in control but price reaches a level that’s rejected and sellers take over and dominate the remainder of the session closing out near or at lows.

Anytime you’re working on a pattern/strategy development it’s extremely important to have a basic understanding of the theory behind why it should work.

This helps build confidence in your strategy which in turn will improve your execution.

Pin bar reversals make logical sense…

Let’s do a quick exercise to get the gears turning.

Imagine yourself entering the above maze. You begin by heading to the right (red arrow) but after walking a while you begin to think it might be the wrong way.

At point 1 you decide to turn around and head back the way you came from.

Eventually you get back to where you began (point 2), and are left with two options.

Continue in the direction you’re going or head back to point 1 again.

Most of the time it would seem logical to continue in the direction you’re going.

However, there still are a few times that you notice or remember something and head back to point 1.

I guess a third option would be to leave the maze lol…

The markets are moved by human emotions, so asking yourself these types of questions can help you paint a clearer picture of the market and where price may go next.

If we relate the path you took in the maze to a pin bar, price was rejected at point 1 where you decided to turn around and then closed at point 2 close to where you began.

Which way do you think it will go the majority of the time considering no other factors?

I’m simply trying to convey the basic fundamentals behind why pin bars work. Human rational and emotions carry over into their trading decisions, which is what moves the market. No different than the decision you made in the maze.

Pin Bar Types

There are number of different pin bar formations you can trade. I personally generalize them all as pin bars or inverted pin bars but here’s a quick breakdown of the different types.

Hammer

The Hammer  is bullish reversal pin bar that forms at the end of a decline in price (downtrend).

Sellers held control during the start of the session but by the end of the session the buyers stepped in and take price close to highs. The end result is a candle with a long lower tail or wick which will exceed below the most recent price action.

Shooting Star

A Shooting Star is bearish reversal pattern that forms at the end of an advance in price (uptrend).

Buyers maintained control during the beginning of the session but by the end sellers took over and drove price back down below the open of the candle.

The resulting candlestick will have a long upper tail or wick which should extend out above recent price action.

Inverted Hammer

The Inverted Hammer looks exactly like a shooting star but forms after a downtrend in price. The long upper tail signals a potential reversal as buyers began to show aggression yet gave back some ground to the sellers before the candle closed. 

Hanging Man

The Hanging Man looks exactly like a hammer but forms at the end of an uptrend in price. The long lower tail signals that sellers controlled the start of the session but gave back some ground to buyers before the close.

Now let’s get into what you’re really here for.

How to Trade Pin Bars

When trading pin bar reversals there’s several different entry methods to choose from.

The three most common entry methods are:

1. Enter on the break of the high of a bullish pin bar or low of bearish pin bar
2. Enter on a retracement
3. Enter at market on close of pin bar

There’s no perfect answer to which method you should use. Most likely you will end up using all of them, which you will find out in your backtesting.

Personally I use all three methods. Which one I choose depends on volatility, trend, volume analysis, and other pieces of context.

Entering at market or with a stop order at highs/lows is typically going to be used in strong trending markets.

These two methods will typically result in a lower R multiple versus entering on a retrace due to having to use a larger stop.

Retracements are going to work best when you’re fading a trend or in a balanced market.

Pin Bar Trading Strategies

You will often hear me say you need to build context around a pattern/signal to have a real trading strategy.

Context is simply a definition of under what market conditions you will trade a pattern.

As you advance as a trader your definitions of context will become more complex and more specific to the strategy you’re trading.

To get you started, let’s look at some basic pin bar strategy examples.

50% Retracements

Pin bars can be traded with another reversal pattern like 50% Retracements, also know as Halfway Backs.

Wait for a pin pattern to form at a 50% retracement level. You can test looking to exit at different extensions such as the -23.6%.

If you’re not familiar with fibonacci retracements and extensions here’s an in-depth guide.

VWAP Bounce

On strong breakout days a retrace back to the volume weighted average price (VWAP) can provide a good opportunity to get in on the trend. Look for a pin bar to form in the direction of the overall trend at VWAP.

Moving Average Bounce

Pick your favorite moving average and wait for a strong trend.

Once you’ve confirmed a strong trend look to play a pin bar bounce off the moving average.

Double Bottom/Top + Added Context

The following setups is getting a littler more advanced as we begin to add different pieces of context together.

On the setup above a pin bar with a large range forms and rejects lows of the day.

Furthermore, there’s an increase in volume signaling strong buyer aggression.

The more pieces of context you can add to a strategy the better off you’re going to be.

Pin Bar Strategy Tips

Define your strategy in great detail.

I try REALLY hard to convey to new traders that it’s EXTREMELY important to be very descriptive when defining your trading strategies.

Once you have a strong definition of the patterns you will trade as well as under what context you will trade them, do you actually have a trading strategy.

Successful trading strategies are profitable because they are repeatable, whereas random patterns are not.

Pin Bar Range

Avoid trading pin bars with small ranges relative to surrounding price action. Look for the pin bars that stick out like a sore thumb from the rest of price action.

The Trend is Your Friend

On strong trending days don’t trade pins against the trend. Odds are you will see a ton of them and they will all fail.

Create some sort of context to filter out fading strong trends.

Try Volume Analysis

As an order flow trader, at the core of most my strategies is volume analysis. It’s a great way to build context for any trading strategy.

Volume is hands down the number one indicator used in almost every strategy I trade.

Conclusion

Don’t let the simplistic nature of a trading pattern like a pin bar mislead you into thinking it’s useless.

Along with proper context, pin bars can produce some high R multiples.

Becoming a successful trader requires a lot of screen time and testing. It’s time for you to get to work!

If you use pin bars and have something cool to share or a question leave a comment below!