Figure 1. The anatomy of a pin bar
This section explains what the pin bar is. Following sections explain how it may be
traded. Generally examples are only given for pin bars pointing one way. The same
concepts can be applied to pin bars pointing the other way (just reverse the concepts!).
Trading is a probabilities game. There is always risk of loss and the trade going ‘the
wrong way’ after the pin bar has formed. All we can expect to do is to tip the odds in
our favour. When good pin bars are traded then a trader can tip the odds in their
favour. Some trades will result in losses; such losses will occur with any trader from
time to time. (Even a good pin bar setup may result in a loss!)
Looking at Figure 1 we can see what a completed pin bar looks like. See that this
Pinocchio bar (which is abbreviated to ‘pin bar’) is poking his long nose outwards and
is telling you a lie (an untruth) about where the price is going. The name is based on
the old European story about the wooden boy, Pinocchio, whose nose grew longer
every time he told a lie. The bigger the lie the bigger the nose! For us this means that
we want a nice long nose when we see a pin bar. We trade in the opposite direction to
where the nose is pointing (so the pin bar in Figure 1 indicates that traders should be
taking short positions while trading EURUSD). The high of the bars on either side of
the pin are the ‘eyes’ for the pin bar. Note that the open and close of the pin must be
within the left eye. For a nose pointing up, this means that if the high of the eye is
roughly at the 1.2175 level (as shown in Figure 1), then the open and close of the pin
bar must be below this level of 1.2175 (as is the case here). If the open/close is
outside of this level then it is not a real pin bar.
The pin bar means that the price is going to move in the opposite direction to where
the nose is pointing. In Figure 1 the nose is pointing up so the trader should expect
prices to move down.
A pin bar must:
• have open/close within the first eye,
• protrude from surrounding prices (‘stick out’ from surrounding prices); it
cannot be an inside bar.
A good pin bar has:
• a long nose (and a long nose relative to the open/close/low),
• a nose protruding a long way from the prices around it (it ‘sticks out’),
• the open / close both near one end of the bar.
