Pin Bars- Advanced

Setting the initial stop loss
This section talks about setting a more aggressive stop loss initially. This means that the stop loss will be closer to the entry point and will allow a better return on a successful trade but it
will be more likely that the trade will be stopped out.
There are three methods of setting the initial stop more aggressively based on the:
1) eye
2) fib retracements
3) confluence
Slightly more aggressive or experienced traders may decide to put their stop above the level
of the first eye. Again, the stop may be placed just above the level of the eye.
Looking at Figure 1 the stop loss would be placed 10 pips above the high formed by the eye
In Figure 2 the stop has been set just beyond the eye. This is for GBPUSD, dailychart,
for 25 Jan. 2006. After the pin bar the price fell nicely and failed to hit the stop!
Alternatively a trader may place their stop just beyond the 61.8% fib retracement of the
pin bar. If prices do go past this point then there is a good chance that they will continue
to go further. See Figure 3 for how this stop loss is set. Again, Figure 2 can be inspected
to see how the trade ran after this point. We see that the prices retrace the pin to where
they may just hit the stop loss point. An alternative aggressive approach is to place stops
just beyond a fib level or moving average (or confluence of these) that passes through the
nose of the pin bar (this has notbeen illustrated). This will produce a tighter stop than setting
the stop beyond the pin bar; however it is still more prone to being stopped out. Under these circumstances the trader is hoping that the confluence of factors will exert enough resistance
to prices to prevent their stops from being hit.

Entering the trade early
There are several aggressive ways to enter a trade rather than waiting for a break of
the pin bar. They get you in at better prices but there is a greater chance that the trade
will not work out. The two key methods are:
1. entering on the close of the pin, and,
2. waiting for a retracement of the pin bar.
If the trader decides to enter on the close of the pin bar they will get a better price than
waiting for a break of the pin. It is higher risk, however, as the trade is more likely to
fail. One benefit is that it will get the trader into the trade. Entering on the retracement
might not. (Prices may not retrace the pin bar at all – they may just shoot off in the
right direction!)
When a trader decides to enter on the retracement of the pin bar they can get a very
good price. It is higher risk than waiting for a break of the pin. It also has the danger
that prices may not make it to the retracement level chosen, in which case the trader
will miss out on a good trade!
The position of the close of the pin bar will determine which of these methods would
be more profitable. If they are coupled with the more aggressive setting of the initial
stop loss it is possible to have some good trade setups, even if they are riskier.
Finally some traders may decide to enter on multiple points. They may decide to enter
a half of the trade on the close of the pin, then another half of the trade on a 50%
retracement if the prices reach this level. This way they will certainly get a half
position in place (on the close of the pin) but if the prices retrace 50% then they will
get a second half of the trade on at an even better price.
It is also possible to place a sell stop below the bottom of the pin bar as though the pin
bar was going to be played conservatively. This means that the trade will be entered
and the trader will not miss out. However, prices may first retrace some of the pin bar,
allowing an opportunity for the trader to get in at a better price than they would if they
took a conservative approach. If this happens the trader may adjust the sell stops so
that their overall risk is managed effectively.

What to do if you get an ‘almost pin bar’
This section details what to do if the pin bar does not ‘look right’.
Shown in Figure 4 is a setup that does not qualify as a pin bar. This chart is of
October 2005 through February 2006 of the USDCAD, weekly chart. Note that the
close of the ‘almost pin bar’ is below the eye formed by the previous bar.
So, now what? It is not a true pin bar. However in Figure 5 we see that there was an
earlier bar (which was coincidently a pin bar) which has a low that is low enough that
it would make a good eye (the low for this bar is below the open/close of our ‘almost
pin bar’). This bar can be used as a ‘proxy eye’ in place of the eye that is normally
formed by the bar previous to the pin bar. Note how the ‘proxy eye’ is now level with
the current new eye (note that in this case the bar forming the new eye has not
finished yet - it may still close lower).


In Figure 6 we can see the pin bar setup using this ‘proxy eye’. The image has had the
bars between the new ‘proxy eye’ and the current pin bar cut out so that the pin bar
setup can be clearly seen. This pin bar can now be traded as a ‘regular’ pin bar.
Traders may treat this setup with caution and accept that it has a higher risk than an
ideal pin bar setup. (If you go back and check this trade you will see that it was good
for quite a few pips but was not fantastic.)

Which pins to trade?
This section gives some examples of pins that are ‘good’ and would be good to trade
as well as pins that might be avoided. Traders may combine pin bars with other
methodologies, particularly technical analysis. Pin bars off support/resistance or
channels can be particularly effective.
Traders may decide not to take a trade into an area of support or resistance. Better
probabilities will be found trading away from areas of resistance / support. Remember
that a pin bar with a higher probability of success will be bouncing off these
areas! Sometimes it is tempting to play a pin bar on a 4H chart until you realise that
on the daily chart there may be some serious resistance that would need to be
overcome for the pin bar to be successful.
If there is a weekly pin that suggests that long trades should be taken, traders may be
cautious about taking a short position based on a daily or a 4H pin bar soon after this.
Remember that pin bars on longer time frames give more powerful and longer-term
indications of price movements.
You can be patient and take only the best pin bar trades. Take them at swing low /
swing high and when the pin bounces off confluence of fib levels and moving
averages or other areas of support / resistance. These are the best setups. Be selective
and make sure that the pin bar ‘looks right’. As a trader plays more pin bars they will
gain experience and understanding of how price reacts with pin bars. Over time this
experience will help traders to trade pin bars more successfully in the future in similar
circumstances.
When investigating pin bar setups you may find yourself unsure about a specific pin
bar setup. Traders may decide not to take questionable pins that they have doubts
about. You might think that you are trading into heavy resistance but the pin bar does
look good. Do not trade it. Be selective and take the best.

Trading using multiple time frames
As suggested in the previous section, it is often profitable to trade using multiple time
frames. Use a pin bar on the longer time frame to set the probably direction of the
trend that trades may be taken in. Then switch to a smaller time frame to fine-tune
your entry and stop. By doing this you can achieve much tighter stops which can
allow greater profits. Trading on the smaller time frames might be using price action
and pin bars, or other methods. Traders may use a long-term pin bar setup to
determine near-term price movements and trade using different methods on a shorter
time frame in this new trend direction.
If Figure 6 is investigated and daily charts for USDCAD are pulled up there is soon a
pin bar forming on the daily chart with the nose pointing UP in the opposite direction
to the weekly pin bar! In this case it may be wise to pay more attention to the weekly
pin bar because these tend to be more reliable so prices will probably continue up for
a while, despite the daily pin bar suggesting that prices may head down.

Closing remarks
In closing I would like to remind readers that it is important to practise good money
management while trading. Trade less often and take only the best setups. Trading is
a probabilities game. The outcome of each trade is going to be random and you
cannot know the outcome in advance but over time you can make consistent profit
if you can tip the odds in your favour. You can do this using pin bars.I hope that some
readers will find these files helpful and that they will learn to trade pin bars and enjoy it.

(Pin Bars tutorial extracted from James 16group)

Introduction to pin bars- Continue

Playing the pin bar
This section details how the pin bar can be played.
Traders that are new to pin bars may put a limit/stop order under the bottom of the pin
bar. It is placed 10 pips under to account for a false break-out (unlikely to be 10 pips). When this order has been triggered then the trend will probably be heading in the opposite direction of the nose. This approach also means that the trade does not need to be monitored so closely.One question that traders may want to ask themselves as they contemplate entering a trade is this: “When will I know if the trade has gone against me and this setup is not working?” When you know how to tell whether or not your trade setup has failed and is not going towork you can begin to calculate how much risk you can take. These calculations are performed before placing orders so that the appropriate level of risk (on the basis of account size) may be determined so that an appropriate position size may be taken. The conservative approach to placing stops is to place stops 10 pips from the end of the pin-bar/nose (the point where the prices are not going, far from the eyes). This level is acting as resistance now. The stop loss and entry orders are placed 10 pips away from highs and lows because sometimes prices will creep a little big past these highs or lows which can have a negative impact on the trade setup. Traders need to discover their own preference for stops and risks based on the pin bar.

Trading the pin and managing risk
This section discusses what to do once the trade has been entered and how to manage the risk during the trade.
So, you’re in the trade - congratulations! Unfortunately entering the trade is simpler than exiting it correctly. Very often several traders in a forum will enter a trade based on pin bars yet one trader will make twice as much profit as another trader because of the differences in the way they exited the trade. The recommendations in this section are based on the following four premises:
1) Very few good pin bars (swing high/low or bouncing off confluence) will move directly to hit the initial conservative stops that trader has placed, without first giving the trader the chance to take some profits (this may happen roughly 10% of the time or less),
2) Traders should take the profits as they are offered by the market,
3) Traders should NOT let a winner turn into a looser. Hell, you’ve earned this profit; do not let the market take it back, and,
4) There are PLENTY of opportunities to trade pin bars, be patient and take only the best pin bar setups!
In essence is it important to close out part of the position early and learn to shift the stop loss to the break even point quite quickly.
The first thing that a trader should try to do when playing a pin bar is close out the trade incrementally. This means that the trader closes part of their position early, at small profit. The benefits of doing this stem from the fact that it banks some profit (consistent winners are those that bank profit); the corollary of this is it reduces the number of lots that can then hit the stop loss (so it has reduced the remaining risk for the trade). The trader can achieve this objective by splitting the total position into several distinct trades or lots. (Remember that no matter how it is split the total value at risk should not exceed your threshold.) The preferences of how the trade is split up and where the targeted profits are depend on the individual trader. It is best to take
some profit initially at 20-30 pips profit (depending on the expected range of prices on the currency pair you’re trading and the time-frame you’re trading), then take more profit a little further on.
It is always uncertain how far a trade will run. Trades resulting from pin bars might run from one bar before the prices turns back, or they may run for many bars. Lock some profit in and leave a portion (1/2, 1/3 or 1/4) of your trade to run until completion. When you lock in your profit by closing out a portion of your trade early you have banked profit (realised profit as opposed to unrealised profit through having the position un-closed) and your total open position size has decreased, meaning that if there is a sharp reversal to your initial stops then the loss has been reduced by a reduced position size and already having banked some profit. (If you do not
understand this concept then please take a pen and paper and fiddle with some numbers and prove it to yourself.)
After a trader has initially banked some of their profit they will want to consider shifting the position of the stop loss. Exactly how this is performed is up to the trader and will depend upon their own trading style. It is an important part of playing the pins, however, as successful traders do not want their winning trades to turn into losers!
Once a trader has taken some profit and shifted the stop loss to the break even point they are in a “free trade”. All pressure is now off the trader, no matter what happens they have banked some profit on this trade and made some money. The trade can now run for large profits without the trader worrying about making a loss on the trade. Because we cannot know what will happen to the price in the future it is necessary that some profit be taken early. Selecting the BEST pin bars and exercising patience will mean that a trader can cherry-pick the pin bars with the highest chance of success. Around 70% of these will be quite profitable. If 10% just reverse to hit the initial stops, then these losses are more than made up for by the profits taken early on many other trades. Around 20% of good pin bar trades will good winners where the price runs and the final portion of the trade will be chasing big pips and bigger profits. Can a trader prevent losses that may occur while you trade the pins? No. This is why it is wise to use the initial stops at the start of the trade. This means that the trader has defined the circumstances under which they know their trade setup has failed and they do not want to lose more money. Doing this indicates that the trader has accepted that there is some risk of the trade failing. These losses are the cost of doing business in the forex market – traders need to accept them.

Finding the pin bars
The purpose of this section is to give several examples of what a pin bar looks like.
The chart shows the daily charts for the GBPUSD pair for aperiod from the 20th January 2006 to the 23rd February 2006. Look at the image and decide whether the numbered bars are good pin bars to trade, based on how they look and where they are. Decide which of these bars, if any, you would trade. See if your comments match those made below.


1. This bar has good form. The open and close are nearly equal and they are very close to one side of the bar (in this case, the bottom) and are lower than the previous eye. But the nose is not very long and it doesn’t protrude much from the prices of the previous eye and the bar before it.
2. The open and close are nearly equal and are quite close to one side of the bar (in this case, the high) and are also higher than the previous eye. The nose is not very long and it does not protrude much from the previous eye.
3. The open and close for this bar are nearly the same but they are getting quite close to the middle of the bar – it is almost a neutral bar. It is good that the open and close are above the previous eye. The nose is not very long because of this. (Note that if you played this pin on a break of the pin bar (taking a long position) there would have been no trade as prices went down on the next bar.)
4. The open and close are nearly the same but they are also right in the middle of the bar. It is also an inside bar (or very close to it) where the bar makes a lower high and a higher low than the previous bar – so prices are not protruding.
5. The open and close are near the same price and are right near one end of the bar and are lower than the previous eye. The nose is nice and long, which is good, and protrudes nicely from previous prices. This would have been a good pin to play on the break and we can see that for the next two bars if we had taken a short position there would have been good opportunity to profit from the setup.
6. For this bar the open and close are near one end of the bar and are higher than the eye. Note that the nose doesn’t stick out much beyond the low of the bar that has been numbered 4, so prices have not protruded much. If we look at the next bar we see that prices only go 5 pips above the high of bar number 6, so we would have not entered a long trade anyway.
7. The open and close are not at nearly the same level and the close is nearly half way down the bar and is not higher than the low of the previous eye! The nose does protrude from the prices, but because of the position of the close this is not a pin bar!
8. In contrast, the close of this bar IS within the previous eye, but it is still half way up the bar! The nose also doesn’t protrude much beyond the previous prices. Overall, this would not be a good pin bar to play.
9. Open and close are near one end and are enclosed by the previous eye. The nose is nice and long but fails to protrude from the surrounding prices much, so it would not be a good pin bar.
10. The open and close are near one end of the bar. However, the nose does not stick out. Not a pin bar.
11. This looks promising with open and close near one end of the bar. They are well placed compared to the first eye on the left. The nose sticks out a bit. This bar isn’t at a swing high or swing low or at confluence, though.
Which of these pin bars should a beginner play?
The bars numbered 1 and 5 seem to have the best form and have the best long noses that stick out from the surrounding prices. If you are patient over this one month period two pin bars would have been played. They both would have worked well with lots of potential for profit. YES it is easy to say this in hindsight but LOOK for the good pin bar formations while you are trading and try it out.

Some final thoughts
Remember that it is fine to trade less frequently than everyone else. If 90% of forex traders will fail it is because many of these traders have ‘an itch’ to trade and feel that they need to be making many trades to make good money. Do not be like them. Select the best pins and aim for longer time frames if you want to gain money. Good traders should be hunting with a rifle from the bushes – they wait for the best setup (using pin bars in this case) then
nail the trade. Over a one month period you may only find one good pin bar setup for each currency pair. If you look at six currency pairs this would be six good pin bars in a month. This might be all you trade for the month but traders can still make good money by exercising patience this way.
Traders who are new to using pin bars use the 4-hour time period as the minimum time period and only try trading on time frames smaller than this when more experienced. Daily and weekly pins are better and are more reliable. Also note that if you trade with longer time periods you will have much larger stops; the range of price movement in a 1 week period is considerably greater than the range of price movement in a 4 hour period. It may be necessary to carefully select a broker that allows you to have micro-lots ($1000 lots) so you can put on a position size that suits your risk.Playing daily or weekly pins also means that you are not glued to your computer. You can check in a couple of times a day to monitor your trades and shift your stop losses as appropriate.
Demo trade pin bars first. When you can trade them profitably for 3 months then open a small account.Trade with the money in this account until you can trade profitably for three months. Make sure you are using small position sizes when you start to trade using real money. Then begin to trade with your full size account or with larger position sizes. An appropriate level to start at may be 0.5% (yes, half a percent) of the trading capital. This allows new traders to become used to the emotional and psychological aspects of trading real money. Each week the amount risked may be increase by 0.1% until the trader reaches a position size that they are
finally comfortable risking on each trade (probably 2-3%).