Forex 4 Freshies

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.