Understanding Pin Bar Candles and How to Use Them

One of the patterns that pro traders often use is the pin bar candle. Where this pattern provides several important positions to enter.

As the most liquid market in the world, crypto attract more and more traders and investors. Everyone comes into the market with different expectations but aims for the same thing, making money. The pin bar itself is a simple yet effective trading strategy that offers an excellent risk-reward ratio.

Definition of Pin Bar Candles

A pin bar candle consists of a single price bar, usually a candlestick price bar, which indicates a sharp reversal and price rejection. A pin bar reversal as it is sometimes called, is defined by a long tail, the tail is also referred to as a "shadow" or "wick".

The area between the open and close of the pin bar is called the "true body", and the pin bar generally has a small apparent body compared to its long tail.

The pin bar candle shows the price area that was rejected, and the implication is that the price will continue to move in the opposite direction of the tail point.

As such, a bearish pin bar signal is one that has a long upper tail, indicating rejection of a higher price with the implication that the price will fall in the near future.

Signal a bullish pin bar has a long lower tail, indicating resistance to a lower price with the implication that the price will rise in the near future.

How to Use Pin Bar Candles for Trading

When using pin bars, there are several different entry options for traders. The first, and perhaps the most popular, is to enter an “in market” pin bar trade. That means you enter the trade at the current market price.

This pattern must be closed before entering the market based on it. Until the bar closes out as a pin bar pattern, it's not really a pin bar yet.

Another entry option for pin bar trading signals, enter at the 50 percent retrace of the pin bar. In other words, you'd be waiting for price to retrace to around the midpoint of the pin bar's entire range from high to low, or the “50 percent level,” where you've placed a limit entry.

A trader can also enter pin bar signals by using “on-stop” entries, placed just below the low or above the pin bar high.

Trading with the trend is arguably the best way to trade any market. Pin bar entry signals, in trending markets, can offer very high probability entries and great risk scenarios to appreciate.

However, setting up trades using this pattern recognition approach still requires stop loss and take profit in accordance with the money management system. Since pin bar candles are mostly automated, the price action is driven by crypto algorithms.

Also read: Understanding Bullish Divergence in the Crypto World

This pattern detects classic patterns quickly. For this reason, when trading crypto, patterns such as wedges, head and shoulders, triangles, flags, double and triple bottoms, cup and handle, sometimes fail.

However, when the pin bar is part of a classic technical pattern, it is more likely to reach take profit. Therefore, many traders use this signal to trade more aggressively when the pin bar strengthens a pattern.

Few traders know that pin bars also work as continuation patterns. When formed against dynamic support or resistance levels, pin bars become powerful trading setups.

In short, for a single candle, the pin bar candle is a sharp reversal and continuation pattern. Make sure you always have the right stop-loss and aim for more than the risk involved, and you will have high chances of profiting.

Also read: Understanding the Inverted Hammer Candlestick in the Crypto World

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