Candlestick patterns are basically among the most important elements which a trader should be familiar with when evaluating charts. Candlestick patterns improve trading executions, trading performance and reduce risks. It is for this reason why many traders make it a point to equip themselves with the knowledge of candlestick patterns. Among the commonly sought-after classification of candlestick patterns is the reversal candlestick patterns – and one of the simplest yet powerful reversal candlestick patterns is the Pin Bar candle.
In this article, we’ll share with you a comprehensive guide to using the Pin Bar Candlestick pattern to win any trade.
(NOTE: Before we continue, we have to give a disclaimer that the trading products offered by the companies listed on this website carry a high level of risk and can result in the loss of all your funds. CFDs are complicated instruments that are never guaranteed to provide you supplemental earnings. In fact, Around 67% of all retail investors experienced a loss while trading CFDs. Make sure to keep this in mind before attempting to use the eToro platform yourself. All the information found on this website is not official trading advice and all practices shown are referenced for the use of the Demo account only.)
What is a Pin Bar Candlestick Pattern?
A Pin Bar Candlestick pattern as its name suggests looks like a Push Pin or Pin that is composed of a head and a needle for its body. The head of the pin is the actual body of the candle, while the needle is the wick or shadow of the candle. The Pin Bar Candlestick always has a small body and a wick that is more than 2 or 3 times the length of the body.
Depending on the location, a Pin Bar Candlestick can be bearish or bullish. A bullish Pin Bar Candlestick is located at the end of a downtrend with its head pointing upwards and its long tail downwards. On the other hand, a Pin Bar Candlestick is said to be bearish if the head is located at the bottom and the needle or wick is sticking upwards. Candlestick colors have less significance when classifying bearish and bullish Pin Bar Candlestick patterns. What’s important to note is the position as well as the dimensions of the candle.
The Pin Bar Candlestick pattern is a reversal type of pattern which signals the reversal of a current trend. This means, if the pattern forms at the end of a downward trend, there is a likelihood that the trend will change to an uptrend. Likewise, if the pattern forms at the end of an uptrend, the trend is expected to reverse to a downtrend.
Traders love this reversal pattern because it is easy to interpret and likewise easy to spot in a chart. Simply look at the end of a trend and find that candle with a small body and a tail or shadow that is sticking out the most. Most of the time, the Pin Bar Candlestick will have the longest wick among other candles at a certain level.
Trading with Pin Bar Candlestick Patterns on eToro
To best understand the use and the effect of the Pin Bar Candlestick pattern, let’s consider a few traded stocks from eToro.
The first example below shows a chart for AAPL that had a series of Pin Bar Candlestick formations at a certain range. The first formation came after a sideways movement of the market. Now the Pin Bar Candlestick works best for strong upward or downward trends however can also work on sideway trends provided that the preceding candle displays strength. For the first occurrence of the pattern, notice the considerable size of the red candle which has a very small wick or shadow – this displays the strength of the sellers.
All the occurrences of the pattern in this chart display a very long shadow and a small body which confirms the trend reversal. It is also noticeable that the opening and closing price of the candle is very near the close and open of the previous candles.
To identify the ideal entry and exit points with the Pin Bar Candlestick pattern, simply draw a line of support or resistance.
Another example is the asset – XRP. This particular example shows the occurrence of the pattern on a less volatile chart. The same as the previous example, the pattern formed after a significant price action – either through a strong trend like the first occurrence, or a thick candle that shows strength.
The second bearish Pin Bar Candlestick on this example however doesn’t show a strong candle that precedes the pattern. Instead, a line of resistance has been used to confirm where the price will start to drop and where the pattern will form.
Therefore, with this example, the Pin Bar Candlestick pattern can also be confirmed by using levels of support and resistance. The occurrence of the pattern on these levels can signal that price has reached the end of the trend and can likely reverse after the pattern.
What we Think about the Pin Bar Candlestick Pattern
For a trader who refers to price action alone, the Pin Bar Candlestick Pattern could already create a good estimate of the ideal entry and exit points on a chart. However, relying on the candlestick pattern alone may not be applicable to non-volatile markets or on strong trends. To counter this problem, we can make use of support and resistance levels to identify where the price is likely to bounce back or pull back.
What’s important to bear in mind when dealing with the Pin Bar Candlestick Pattern is to identify the correct pattern. And the correct Pin Bar Candlestick Pattern should be the one with an open and close that is near the open or close of the previous candle. Also, the candle should have a small body and a long wick or shadow which is more than three times the size of the body. Lastly, the wick of the pattern should stick out more than the rest in a current trend.
By incorporating the Pin Bar Candlestick Pattern with other indicators such as Moving Averages, RSI, trend lines, and others, a trader would be able to take full advantage of the pattern. With constant practice with an eToro virtual account, it is easy to master the Pin Bar Candlestick Pattern and increase your winning ratio.
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