Pinbar Trading - Price Action Forex Trading with Pinbars

Today I am going to discuss trading the price action pattern called a Pinbar which is a fantastic technique for catching reversals, entering traps, and getting into trends.  In this article, I will specifically talk about how you can use it for finding short term tops and bottoms, what it is communicating from a price action and order flow perspective, and one method for trading them.

 

The term was originally penned by Martin Pring calling it the Pinbar, which stood for 'pinocchio bar' or a bar that is telling a lie.

 

Why?

 

Martin had noticed that these types of bars come up in strong trending moves, but what they do is initially create a break of the highs or lows for the move, but then break back into the range of the prior candle. This break of the highs or lows is the 'telling a lie' part of it, trying to get short term traders in on the break.  When the candle breaks back into the range, they are then trapped and if the price action continues to break in the opposite direction of the trend, then those traders who are trapped have to exit their longs/shorts, thus helping fuel the reversal.  But lets take a look at a general pinbar in the image below.

 

pinbar trading price action forex pinbar patterns 2ndskiesforex mar 19th

Looking at the image above, the blue bar at the bottom is a pinbar, which generally should open inside the body (and/or wick) of the prior bar.  The pinbar itself should form a new low in a downtrend, or a new high in an uptrend.  This is what creates the 'trap' for the traders that entered short on the break below the lows. With the bar closing up, the new shorts are now trapped and if price climbs enough, they will have to exit for a loss which will help fuel a price rise and the reversal.

 

Now lets take a look out a little further at this pinbar in the context of the price action around it with the chart below.

 

pinbar trading forex price action pinbar setups 2ndskiesforex mar 19th

Now that we see the larger picture here, price was selling and then formed a SL at .8100. Price then bounced to .8275 where it ran into resistance and created a pullback from the SL. Price then sold off for 8 candles (32hrs) only to run into a pinbar a prior support level, giving us a really good price action trigger to go long and reverse this move.  Let's see how it played out in the following chart.

 

pinbar price action forex trading pinbar trading 2ndskiesforex mar 19th

After selling off for 8 candles and 32hrs straight, price action then formed a pinbar, which was the low in this move reversing 90 of the 130pip sell off (over 61.8% of the move).  We actually blogged about this setup ahead of time and many of our price action traders got long on this one for a nice 3:1 reward-risk setup.

 

We placed our entry on a small pullback into the pinbar, and targeted .8225.  Price went about 10pip past our entry and then encountered a new wave of selling.  But as you can see, the pinbar itself was the key price action trigger in setting up this reversal.

 

Let's take a look at another pinbar to give you another example, then we will talk about finding a good entry for the pinbar along with time frames.

 

pinbar forex price action pinbar trading 2ndskiesforex mar 19th

Here is the EURUSD on the 1hr time frame.  Price has been climbing for over a day from 1.3140 - 1.3290 and then forms a pinbar at the top of the uptrend.  Notice how in forming this pinbar, price had already been struggling around 1.3270/80 to make any new significant highs.  Let's take a look at how price action responds to this pinbar formation.

 

pinbar forex price action strategies price action trading 2ndskiesforex

Looking at the chart above, notice how after forming the pinbar, price then formed an inside bar right after the pinbar, telling us there was definitely a pause from the pinbar rejection which is interesting since a) price was already struggling around 1.3270/80 and b) the bulls had been in control for so long.  Where did they go all of a sudden?  This should have been a clue the market was about to reverse and the pinbar was the trigger.

 

Price then traded sideways for a few hours, but then sold off heavily shedding +180pips from the pinbar highs giving a highly profitable trade with very low risk so hopefully this gives you an idea of the pinbar formation as a whole.

 

Pinbar Entries

 

In terms of finding a good entry, one method is to take a pullback, perhaps 50% into the pinbar itself.  If the bulls/bears are in control at the time of the pinbar, there is a good chance they will attempt to break the highs/lows of the pinbar so a pullback gives a nice option to get in the market.  There are actually many pinbar entries, and they should depend upon the context of the price action around and leading up to the pinbar itself.  Depending upon how the price action is leading up to it and around it will determine and communicate what is the best entry, but the 50% pullback is one solid option you can use for now.

 

In my forex price action course, I actually discuss how to quantitatively break down a pinbar as we have tested over 10yrs worth of data on pinbars over 15 pairs, totaling over 100,000+ pinbars. From this information, we were able to come up with a very precise definition of a pinbar, along with giving you exact entry parameters for each type of pinbar, and how to find optimal targets.

 

One methodology suggested has been to find a 2:1 reward to risk target, or next key support/resistance level. But testing has shown this not to be an optimal method for trading this, as many times price can way under/overshoot the target, either leaving you stopped out before your target, or missing out on a lot of potential profits.

 

Time Frames

 

In terms of time frames for trading pinbars, they really can be traded on all time frames from the 1min, to the weekly chart.  However, testing has shown them to be a lot less accurate on anything lower than a 1hr time frame, so we suggest using them on the 1hr, 4hr and daily time frames.

 

It is not that they cannot be used on the lower time frames, but in isolation, they will be a lot less effective, so you will need to add additional optimizers and parameters to enhance the strength of them.  Also consider on the 1hr, 4hr and daily time frames, more traders will be watching them, and thus get into the trade - likely strengthening the reversal.

 

Along those lines, think about it this way.  If price action forms a pinbar on a 5min chart, we are talking about a rejection that lasted 5mins.  Think of how many orders or transactions occurred during that time.

 

Now compare that to 1hr of price rejecting, 4hrs of price rejecting (half a trading session), or a daily pinbar showing price had rejected for an entire day across three different sessions with three different sets of investors all weighing in saying this price rejection was a significant one.  If you consider that, then it makes more sense the 1hr, 4hr and daily ones will have greater strength to them.

 

In Summary

 

Thus as we can see, the pinbar formation is a strong price action pattern communicating a rejection of sorts in finding tops and bottoms, telling us a counter-trend move is likely to begin. Obviously this is an over-simplification of it, but we can see how it works and understand it from an order flow perspective.

 

There are many other variables and types of pinbars, which will enhance or weaken the pinbar, such as body size, close-type, prior price action, was it a trap, was it hitting off key levels, etc., but this should give you a good introduction on what a pinbar is, what it means from an order flow perspective, how it works from an order flow perspective, and one way you can trade it.


Other Related Articles:
Intraday Price Action Trading - Reading Forex Price Action
Pinbar Setup NZD/USD Mar. 9th
EURJPY Pinbar Price Action Forex Setup Mar. 7th

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Tags: action, advanced, beginner's, capre, chris, course, courses, education, forex, pinbars, More…price, read, reading, reviews, signals, strategies, systems, trading, training, triggers

Comment by 2ndSkiesForex on March 19, 2012 at 3:45pm

De nada Dimitar - glad you liked it.  Was hoping to make it easy to read.  Writing my book has forced me to re-evaluate the way I write things (especially with my publisher always giving feedback), so am glad to hear it worked out.

Kind Regards,
Chris Capre 

Comment by 2ndSkiesForex on March 19, 2012 at 4:02pm

OMG - I was just reading one of my favorite books of his 5mins ago 'Ideas and Opinions'.  Then put it down to see the london close.

Serendipity

Thanks for sharing this - cannot tell you how much I enjoy reading Einstein.

Kind Regards
Chris 

Comment by talisman on March 19, 2012 at 10:17pm

hi chris,  good article.  when you evaluate a pinbar on a four hr tf do you skip down to a lower time frame to see if the pin was formed evenly over the 4 hours or if it may have been formed in a five minute period due to some kind of reaction to news or something ?  not sure if i ve described that well enough but hopefully you can catch what  i m pitching

Comment by 2ndSkiesForex on March 19, 2012 at 10:26pm

Hello Talisman,

Good question - generally, since I am already watching the price, and likely know of the pinbar or potential pinbar formation ahead of time, ill know if its some random 5min rejection or not. But if you missed the pinbar formation and are just getting to the charts, you could take a quick peek at the 1hr to see how it formed there.  It could very well be another pinbar on the 1hr as well.

So yes, totally worth a shot if you've missed most of the price action.

Hope this helps

Kind Regards
Chris Capre
Twitter; 2ndSkiesForex 

Comment by talisman on March 19, 2012 at 10:35pm

thanks. a good example of what i am trying to describe is on the aus/usd today.  it formed a pin bar on the 4 hr tf, but this pin bar was basically formed in a 15 minute period of time if you look closer.  does this make it more valid, less valid , or does it matter at all in your opinion?

Comment by 2ndSkiesForex on March 19, 2012 at 10:36pm

hard for me to say unless i can see what you are looking at

put in a screenshot so I can take a look as we probably do not have the same server times


kind regards
chris 

Comment by talisman on March 20, 2012 at 12:19am

Comment by talisman on March 20, 2012 at 9:23am
I did enter this trade , it is currently about 1:2 risk reward right now
Comment by 2ndSkiesForex on March 20, 2012 at 9:28am

Hello Talisman,

I just got to the charts this morning so will comment on the price action after morning meditation but will be happy to explain why it was a good setup from an order flow perspective even though the pinbar formed from the last few mins of price action.

Be back soon

Kind Regards
Chris 

Comment by 2ndSkiesForex on March 20, 2012 at 12:28pm

Hello Talisman,

I realized its better if I cover this in the Price Action Webinar I am teaching in 1.5hrs so come to the webinar which is being recorded and I'll talk about it there and why it was a valid setup from a price action and order flow perspective.

See you then

Kind Regards

Chris 

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