Pin-Bar candlestick pattern: a reliable signal of a trend change
- VFX Blog
As you know, trend trading is the most profitable and is used by everyone: from beginners to large market makers and hedge funds. But, despite the outward simplicity, this strategy has two problems: to find the point at which a strong movement begins and, more importantly, to determine the moment when it ends. In this article, you will learn how to binary trade with the Pin-Bar pattern, take profit in time or open a countertrend trade.
This pattern is part of the Price Action method, which is positioned as a further development of candle analysis. It is fair to say that it is not completely clear what the «development» is other than renaming standard graphics models. The same Pin-Bar is one of the special cases of «Doji» - candles with a small or absent body and long shadows. Doji is also a reversal signal and the principles of its development can be successfully applied in Price Action.
We can say that Price Action is a method, not a trading system with clear rules. A trader can use it in combination with free binary signals or an indicator strategy. As practice has shown, you can achieve up to 30% increase in average profit.
The name was coined because of the type of central candle similar to the nose of the fairy-tale hero Pinocchio – the larger, the more reliable signal. The Pin-Bar pattern can be formed at the end of both an uptrend and a downtrend. The classic version looks like this:
For the Pin-Bar to be considered formed; the following conditions must be met:
• The body of the central candlestick is absent or does not exceed 20% of the length of the «nose» If this condition is not met, the model is not considered correct and beginners should miss the live binary signal;
• «Nose» extends far beyond the «eyes», but its body should be completely inside them and as close as possible to the closing price, which according to classical candle analysis is considered a «hammer» (bullish Pin-Bar) or «inverted hammer» for a bearish one.
The central candlestick cannot be an inside bar, another basic construction of Price Action. It is considered a trend continuation pattern and only in rare cases is it followed by a from the binary options signal service!
• The closing of the pattern is always near the open price or outside the left eye;
• On the chart, you can find quite a lot of areas where there are combinations of candles similar to Pin-Bar, especially on lower timeframes. Even if they are "correct", choose for the entry point those that are near:
- Intraday support/resistance levels;
- Significant price highs/lows: week, month or daily with high volatility;
- Fibonacci levels if there is a correction of the main trend;
- Moving Averages, especially for long periods, for example, 200-day;
- Zones where several levels are located (merging);
- The Pivot Point;
If the shadow does not go beyond the previous bar and the general price movement as shown in the figure, then we have a false pattern. Thus, we have before us not a reversal pattern, but a short-term pullback, after which the trend continued. At the same time, the correct candlestick combination shows a new high or low with a subsequent reversal.
A false pattern is considered riskier, and you should only use it in trading if you have sufficient experience. Before opening a trade, you need to check the trend direction for several timeframes and pay attention only to the candles that appear on pullbacks and corrections.
From the point of view of the market situation, Pin-Bar appears when large players decide with one sharp movement to squeeze out smaller ones «knocking down» their positions at the end of a trend. This is the reason for the long «nose» when a sharp increase in market volume temporarily moves the market beyond the end of the movie. Also, similarly market makers «hook» their pending orders if the price has not reached the calculated level before the reversal.
Two main options binary options strategy
The option can be opened after closing the nose, but it is better to wait until the pattern is fully formed. Thus, we are waiting for a complete rollback and the trend to go in the right direction. Example binary.com strategy with the Pin-Bar pattern:
The option opening level is recommended to be 5-7 points higher /lower from the beginning of the "nose" to insure against market noise at the time of the correction. The expiration time is at least 3-5 candles of the working timeframe, we look at the market situation. After opening a trade, it is important to exit it correctly if the broker allows you to close the option before expiration. You must follow the mandatory rules on any trading instrument and binary trading signals:
• Pin-Bar pattern or similar candlestick combinations appear quite often and you need to select only the most reliable ones for trading, i.e. those that are near significant price levels: Fibonacci, highs/lows, moving Average intersection, breakdown of the boundaries of the channel indicators.
• The price rarely (no more than 10% of cases) continues to move towards the nose, opposite to the open option. If possible, close the option or wait for expiration, a quick reversal is possible. Don't open a second opposite trade, keep your emotions in check!
As the movement develops, we start partial profit-taking. It is impossible to know exactly how long the trend will last, especially if there are upcoming significant fundamental events. Also, the price reversal may not start immediately – after closing the right eye, several candles may pass before a directional price movement begins. Therefore, we divide the options volume into 3-4 parts with different expiration dates and close them as soon as possible.
This tactic allows us to remove unnecessary psychological stress since we remain in profit even with an unpredictable reverse trend. If the price, on the contrary, continues to go in the right direction, you can try to add an option at the current price for a greater profit, but this is only if you have experience with free binary signals. Newbie’s should take profits at the first sign of a shift in the balance of power between buyers and sellers!
Recommendations about use …
• The ratio of the body of the candle "nose" to its length. Each currency pair has its average length due to volatility and overall market liquidity. If you wait for a “long nose” where it basically cannot be, good entry points will be missed;
• The minimum length of the nose with the body of the candle. This is relevant for a sideways market and a period of reduced volatility. In this case, the average length of the candles decreases and you may not notice the entry point even in a wide corridor. But if you follow the small noses, it is quite possible to identify a promising Pin-bar in a quiet market;
• Position is nose relative to the left eye. The classic nose should be completely inside the body of left candlestick, but this is optional. The market rarely gives ideal binary option trading signals and this can be seen in the figure above, but development is going in the right direction and in each case you need to be guided by experience and confirmation from other indicators;
• Length of the left candle. At first glance, this is not worth paying much attention to, but it is not. When the market moves in large multidirectional impulses, almost all candles have long shadows and it is visually difficult to see the pattern behind this "forest" and even the large left eye seems small. Reducing the average length solves the problem;
Let`s summarize. The Pin-Bar candlestick pattern is a profitable and reliable signal of the Price Action method for any binary.com strategy. But there is a drawback - it is correctly processed only on older (from one hour or more) timeframes, which, incidentally, is typical for all candlestick combinations and technical indicators. Also, ideal combinations are rare and require constant attention and filtering of false signals.