LESSON 1: Anatomy of a Pin Bar

First things first. In order to trade (and profit from) pin bars you first need to
become familiar with the characteristics of a pin bar. This will not only help
you identify true pin bars on your chart, but will help you understand the
terminology used on this site.

Here's a brief video that explains the attributes of a pin bar...

And here's a visual of the characteristics...

The image above illustrates a bullish and bearish pin bar with each part
labeled. The pin bar consists of the tail, body and nose.

Let’s start with the “tail” of the pin bar, which is its defining characteristic and
also sometimes called the “wick” or “shadow”. The tail of a pin bar should be
at least 2/3 the length of the entire bar. The longer the better, but it must make
up at least 2/3 of the bar from end to end. Notice in the image above, the tail
is about 3/4 of the entire bar, so this qualifies.

The “body” of a pin bar is also important as it represents the open and close of
the pin bar. The open and close should be close together; the closer the
better. The body should also be close to the end of the pin bar. Notice where
the body is relative to the range (high and low) of the bar in the example
above.

Last but not least, the “nose” of the pin bar. While not as important as the tail
or body, the nose is important only as it relates to the tail and body. This is
because if the tail is at least 2/3 of the entire bar and the body is small, then
the nose should also be relatively small. Also know that a pin bar doesn’t need
a nose to be a pin bar. Sometimes it’s non-existent if the open or close occur
at the extreme end of the pin bar. The smaller the better.

Trade well

Justin

LESSON 2: What Makes Pin Bars So Profitable?

In order to successfully trade pin bar setups, you first need to understand
what makes them profitable. In other words what sets a pin bar apart from any
other candle on a chart besides the way it looks?

In this lesson I’m going to explain the dynamics of the pin bar to illustrate what
makes it such a valuable formation.

We previously discussed the anatomy of a pin bar. If you haven’t read this
lesson please do so first as I’ll be referencing some of the characteristics
here.

At this point we know what a pin bar looks like, but what significance does it
carry? This is probably one of the more important lessons because it focuses
on what makes pin bars so effective rather than how to trade something called
a “pin bar”, which is really just the shortened version of “Pinocchio Bar”, a
term that was coined by Martin Pring.

The point of this lesson is to be able to read a pin bar rather than just take a
trade because a certain candle looks like a pin bar. You’ll find that this type of
education will extrapolate into other areas of your trading – learning to actually
read price action that is.

Supply and Demand Are King

Everything we do in Forex comes down to two terms, supply and demand. It’s
what makes the market move up and down and it’s also what gives us price
action signals such as pin bars.

Here’s the basic idea behind the two terms...

Supply is the amount available at a certain price. As price increases so too

does the supply as traders are more willing to sell their positions.

This is what gives us swing highs. The market reaches its “saturation point” so
to speak as traders begin to sell their positions, increasing market supply and
driving price down.

Demand is the amount wanted at a certain price. As price decreases so to

does the demand as traders are more willing to buy or add to current
positions.
This is what gives us swing lows. The market reaches a price at which the
majority of traders feel is of “value” and begin to buy more, which removes
market supply and drives prices up.

Now that we’ve covered supply and demand, let’s take a look at how these
two concepts apply to pin bars.

A bullish pin bar forms when the market peeks below a key level and is met
with a barrage of buy orders, driving price back above the level. When this
happens the demand side of the seesaw begins outweighing the supply side,
thus we get a rally.

The same applies to a bearish pin bar. When a market peeks above a key
level and is immediately met by sell orders, the market losses ground. This is
when the supply side of the seesaw begins outweighing the demand side.
When this happens the market drops.

When either of these scenarios happen, it’s an indication of market sentiment.

In the bullish scenario the market believed that anything under a certain price,
our key level, was worth buying. Just as traders believed anything above our
key level was worth selling in the bearish scenario. So who are these traders?

Always Make the Second Move, Never the First

Most pin bars that form on the daily charts are a result of the big boys (banks,
hedge funds, etc.) buying or selling. That means large, pending orders that
get triggered at a specific price. How do I know this? Because the tail of most
pin bars is formed in a matter of hours and usually involves 50 pips or more.
Only market movers like large banks and hedge funds can cause that sort of
movement.

But that’s okay. In fact it’s ideal. As retail traders we aren’t interested in those
50+ pips that form the tail of a pin bar. What we’re interested in is the follow
through that happens after the pin bar forms. Of even greater interest is what I
just mentioned…

Pin bars give us (retail traders) insight into where the big boys are positioned.
This is where the real value lies – that pin bars show us the levels, or areas, at
which the banks and hedge funds feel are overvalued or undervalued. What
more can we ask for as retail traders?

What’s even better is that these areas often occur around support and
resistance levels. This makes our job as a retail traders that much more
advantageous. We’re no longer wandering about the market trading areas we
think should act as support or resistance. Instead we’re identifying our levels
up front and then letting the big boys show us the way. By doing this we’re
trading what is happening, not what we think should happen.

I hope you enjoyed this lesson.

Trade well

Justin

LESSON 3: Entry Strategies

Before we get into all the juicy details about pin bar entry strategies, we need
to discuss a very important subject, the Risk reward ratio. Please do not skip
ahead because the pin bar entry and exit strategies we’re going to cover in
this module won’t make much sense without understanding the risk to reward
ratio.

Not only that, but the proper risk to reward ratio is crucial if you want to
succeed as a Forex trader. I truly believe that this is the missing link for many
traders who are struggling.

Risk to Reward Ratio

So what is a “risk reward ratio”? A risk reward ratio is simply the amount of
capital risked to achieve a desired gain. Because it’s a ratio we represent it as
follows:

1:2 (in this case the “1″ is our risk and the “2″ is our reward) An example
would be risking $50 for a potential gain of $100. Let’s look at another way to
represent the risk reward ratio.

R-Multiple

Don’t worry, it isn’t as scary as it sounds. The R-multiple is simply the ratio
converted to a multiple. So in the case of our example above, the 1:2 ratio
becomes 2R. Let’s covert a few more before moving on.

 1:3 becomes 3R
 1:2.5 becomes 2.5R
 1:4 becomes 4R
 etc.
We’re essentially just placing an “R” after the second number (reward) in the
risk reward ratio. Because the risk is always represented as the number one,
the reward will always be divisible by itself. It’s just an easier way to represent
the risk reward ratio.

The reason I mentioned that the proper risk reward ratio, or R-multiple as we
now know it, is critical to your success is because it allows you to have more
losers than winners and still come out ahead. How is that possible? By
maintaining a 2R minimum per trade. If you maintained a 2R average, you
could actually lose 65% of your trades and still come out ahead.

Now that we understand R-multiples and the benefit of maintaining a 2R

minimum, let’s get into pin bar entry strategies. The rest of this lesson will
assume that we have already gone through our confluence checklist and are
now ready to place the trade.

Pin Bar Entry Strategies

There are two common ways to enter a pin bar trade. Both have merit and
really depend on the trader as well as the market conditions.

Strategy #1: Break of Pin Bar Nose

There are two common ways to enter a pin bar trade. Both have merit and
really depend on the trader as well as the market conditions.
Entering on a break of the pin bar nose involves placing a stop order just
beyond the nose of the pin bar. In the example above, we would place a sell
stop just below the pin bar nose. The distance at which you place the order is
really personal preference and depends on the currency pair traded, but a
good rule of thumb is 5-10 pips. This allows for some room in case of a false
break.

Strategy #2: 50% Entry

This is my favorite way to enter a pin bar trade. It’s my favorite because it
allows for a more favorable entry price, thus increasing the potential R-
multiple. This means that on a potential 2R trade using the break of pin bar
nose method, you can now potentially get 3R or better using the 50% entry
method on the exact same trade setup. If used properly, the 50% pin bar entry
can have a drastic effect on your account balance over time.
This is my favorite way to enter a pin bar trade. It’s my favorite because it
allows for a more favorable entry price, thus increasing the potential R-
multiple. This means that on a potential 2R trade using the break of pin bar
nose method, you can now potentially get 3R or better using the 50% entry
method on the exact same trade setup. If used properly, the 50% pin bar entry
can have a drastic effect on your account balance over time.

Although the 50% entry can provide better returns, it’s not without flaw. About
half the time (even less on some currency pairs) the market won’t retrace 50%
of the pin bar, leaving your buy or sell limit order unfilled. This means that if
you find an exceptional pin bar setup and decide to use the 50% pin bar
strategy, there’s a chance your order may not get filled and you’ll be left
behind. There’s nothing worse than waking up in the morning to see the
market has run 200 pips in the desired direction but missed your limit order by
5 pips. But it’s a chance that many, including myself, are willing to take in
order to squeeze out a higher R-multiple.

That wraps up this lesson on pin bar entry strategies. In the next lesson we’ll
take a look at some possible ways to exit a pin bar trade.

Trade well

Justin

LESSON 4: Exit Strategies

This is where we bring it all together. The reason I titled this section exit
“plans” and not exit “strategies” is because I want it to be clear that you must
have an exit plan before entering a pin bar trade, or any trade for that matter.
The saying, “plan your trade and trade your plan” could not be more true for
those who have found success in the Forex market.

There are two types of pin bar exit plans. This may seem a bit obvious but I’m
going to list them anyway.

1. Exit for a loss

2. Exit for a profit
Simple enough. You may be wondering why I listed exiting for a loss first. It’s
no secret that our minds naturally gravitate toward thinking about profits first,
and the possibility of losing second. But in order to become a successful
Forex trader, you need to play defense 100% of the time, and that means
putting the potential for loss first. Always, always, always identify your exit
plan for a loss first, and then identify your profit target. It will take some time to
adjust to this way of thinking, heck I even catch myself thinking about profits
first from time to time. But I promise that this one small change will make a
HUGE improvement in your trading as it will force you to think defensively,
making you a more diligent and disciplined trader in the process.

Okay, now that I’m off my soap box (it happens from time to time) let’s move
on.

Setting a Pin Bar Stop Loss Order

So how do we plan for a potential loss on a pin bar setup? By always making
sure we have a stop loss order in place. The best place to set your stop loss
on a pin bar trade is above or below the pin bar tail. This is true regardless of
the entry strategy you utilize.
For a bullish pin bar setup we would place the stop loss just below the pin bar
tail. The distance at which you place the stop loss depends on your comfort
level as well as the currency pair being traded, but a good rule of thumb is 5-
10 pips from the end of the pin bar tail.
Setting a Pin Bar Take Profit Order

Now for the really fun part, setting the take profit order for our pin bar trade.
This can be a little harder to explain, but I’m going to try and make it as
straight forward as possible.

The first thing you want to do is to identify the support and resistance levels
on the chart. In reality this would be the very first step, even before identifying
a potential pin bar setup. This is because in order to know if a pin bar setup is
valid you would need to know if it has confluence, and would have already
drawn your levels on the chart. While this is true, I always look for additional
levels on a chart once I’ve spotted a potential pin bar setup. I do this to make
sure I didn’t miss any key levels that may effect the validity of the pin bar
setup.

Using the same pin bar setup as before, the first level of support looks like it
would come in around the .8987 level, so this would be a safe place to take
profit. In hindsight the market did drop further, but it’s always a good idea to
set your take profit at the first area or support or resistance. Once you get
really good at the pin bar strategy, it’s possible to let some trades run further
by watching how price reacts to a level, but for now just focus on taking profits
at the first level.

Now that we understand how to enter a pin bar setup and how to exit one, I
have a test for you. What if we used the break of pin bar nose entry for the pin
bar setup above…anything wrong with that? I’ll give you some time to analyze
it…

Okay, I’ll give you a hint, it begins with “R” and ends with “multiple”, oh and
there’s a “-” in between. If you knew that, great job! Because our first level of
support (profit target) is so close to the pin bar setup, an entry on the break of
the pin bar nose would violate our 2R minimum we set previously. What to
do?…if you said use the 50% entry method, you are spot on, good job!

Here’s what the two strategies would look like in action…

Hopefully the illustration above doesn’t look like something out of John
Madden’s playbook. But in case it does, let me break it down.
Using the break of pin bar nose entry strategy, we get a stop loss of 80 pips
and a potential profit of 90 pips. As mentioned previously, this violates our 2R
minimum as our profit target would need to be at least 160 pips away, so
there’s no trade using this type of entry. Using the 50% entry strategy, we end
up with a 40 pip stop loss and a potential profit of 130 pips! See the power of
the 50% pin bar strategy?

As an R-multiple, the break of pin bar nose entry becomes a 1.1R, while using
the 50% entry becomes a 3.25R. If risking $100, that’s about a $110 profit
using the break of pin bar nose entry strategy and approximately a $325 profit
risking the same $100. That’s why I prefer the 50% pin bar entry; it’s powerful!

So there you have it, our two pin bar entry strategies and our two pin bar exit
strategies. Here are some important points to take away from this lesson:

 Think of every trade in terms of an R-multiple

 Always maintain a 2R minimum on every trade
 Use the 50% entry strategy whenever possible to maximize your R-
multiple
 Place stop loss orders 5-10 pips away from the tail of the pin bar
 Always account for potential loss before potential gain
 Use the next level of support or resistance as your profit target when
trading pin bars
Trade well

Justin

LESSON 5: Determining the Quality of a Pin Bar

There are four main qualities I look for when it comes to pin bars. These are
qualities that I’ve found to add conviction to any pin bar setup. As such, they
aren’t necessarily “must haves”, but they can turn a B+ setup into an A+ setup
– which is what we want to trade.
In this lesson we’re going to focus on the shape of the pin bar as well as how
and where it forms relative to surrounding price action. Therefore we’ll
assume that all support and resistance levels are in fact “key” levels and that
all setups are with the trend.

Size of the Nose

You should know by now what a pin bar looks like from LESSON 1: Anatomy
of a Pin Bar. But where the pin bar closes can also tell us a lot about the
quality of the setup. This goes back to the core of what makes pin bars so
profitable - the balance of supply and demand.

From other lessons we know that when demand outweighs supply the market
goes up. Inversely when supply outweighs demand the market goes down. Of
course there are varying levels of demand outweighing supply and supply
outweighing demand. In other words the strength or weakness of a market (or
key level) varies depending on the circumstances.

So what does this have to do with the shape of a pin bar? To answer that
question we have to look at how the market reacts to the high or low of the pin
bar. Does it close at or near the high or low of the day, or does the market
back off leaving us with a large pin bar nose?

Let’s take a look at both examples...

Even though pin bar 2 did back off from the low of the day, notice how the
nose is smaller than pin bar 1. This is what we want to see from a pin bar. The
smaller the nose, the better.

Pin bar 1 was still extremely profitable even with the larger nose. Therefore
this quality isn’t something that a pin bar must have, but it certainly helps. The
only time the nose of a pin bar is a “make or break” quality is when its size
brings into question whether or not the formation is a true pin bar (tail at least
2/3 the length of the range).

Relative Size Matters

This is one that I had to learn the hard way. When I first started trading price
action I was so anxious to take trades, that I was often trading pin bars setups
that weren’t A+ setups simply because the pin bar was too small.

Too small compared to what, you ask? The previous period’s range. Or, the
size of the last few candles that preceded the pin bar in question.
A good analogy is attempting to cross a street at a crosswalk when a bus is
still speeding toward you. If you’re like most people, you want to see that bus
starting to come to a complete stop before you take those first steps to cross
the street. It isn’t enough to see the bus tap the brakes, especially when its
momentum hasn’t slowed.

A small pin bar relative to surrounding price action is similar to the bus
example. When the market has momentum and puts in a 200 pip day, the last
thing you want to do is trade a 50 pip pin bar in the opposite direction. These
pin bars can sometimes work out in your favor, but it’s been my experience
that these pin bars can just as likely fail.

What you want to see is a pronounced pin bar that stands out from the
surrounding price action. If you have to search hard to find a pin bar, it
probably isn’t worth trading.

Here’s an example of an obvious bearish pin bar on the daily chart.

Notice how far the tail sticks out from surrounding price action and how much
larger the candle is compared to previous candles. This is the kind of obvious
pin bar we want to trade.

Price and Time

Like the topic of relative size, price and time is all about reading market
momentum (supply and demand).

The Forex market is all about price and time. Every chart has a Y axis and an
X axis. The Y axis is represented by price while the X axis is represented by
time. The combination of the two is what gives us the ability to trade price
action.

Why is this important with respect to determine the quality of a pin bar?
Because if the market hasn’t put in enough price or time (possible both)
between a reversal pin bar and the last swing high or low, the quality of the
pin bar can be put into question.

Below is an example of a failed bearish pin bar. Continue reading to find out
why this happened.

Notice how in this example, once the market broke the .8520 level it spent five
days traveling lower. This gave us the swing low as illustrated above. From
here it’s perfectly logical to look for a pin bar reversal from the key level, which
is the red line.
However instead of taking another five days or more to get back to this level,
the market retested it in less than 48 hours. The price action was telling us
that there was significant demand below this key level. So when the bearish
pin bar formed as noted above, the quality of the pin bar was put into
question.

As we can see from the example, the pin bar setup failed. The bullish
momentum from the prior day was too much for the bears to handle. In
essence there wasn’t enough time between the swing low and the retest of
the level.

A more favorable retest for a short entry would have looked like this:
Notice how much more space and time we have to work with in this example.
If NZDUSD had formed this price action instead of the former, it would have
made the bearish pin bar setup much more favorable.

This type of price action tells us that while demand does exist below the key
level, it isn’t likely to outweigh supply given the bearish pin bar that formed.

Has the Level Been Tested?

Just as a Structural Engineer uses stress testing equipment to determine the

strength of a bridge, we use pin bars to test the strength of a key level. This is
when the placement of a pin bar relative to a key level is important.

There are two main types of pin bars when it comes to testing a key level.

1. Immediate bounce from a key level

2. Tail protrudes through the key level

I find that a lot of traders believe an immediate bounce from a level to be

ideal. However in my experience the best pin bars to trade are the ones where
the tail of the pin bar protrudes through a key level. This isn’t to say an
immediate bounce is bad, but it does create a few challenges that I’ll
elaborate on in a moment.

Before we go too far, let’s take a look at both examples. The first example
shows a pin bar that bounced immediately from a key level. The other shows
a pin bar where the tail is protruding through the level.

Pin bar reacting immediately to key support

The bullish pin bar to the right is well-formed and occurred at a key level,
however the market hasn’t tested the entire area. The fact that the market has
reacted sharply to this level shows that demand is strong above the level, but
what about below it?

This is important because remember that even though we often call these
levels, they are in fact areas or zones. What if in this example the real support
level was 20 pips lower? Now we have a bullish pin bar that looks great, but it
isn’t actually testing a key level.

Pin Bar Protruding Through Key Support Level

Similar to the example above, the bullish pin bar to the right is well-formed,
only this time it has fully tested the entire support area. With the tail of the pin
bar protruding through the level, we can easily see that demand is strong
throughout this area.

This type of pin bar tells us that there's significant demand above and below
the level. Traders are showing their approval of current prices by keeping the
market above the key support level.
These are the four main qualities I look for when analyzing a pin bar trade
setup. It doesn't mean I won't take a trade if all of these qualities aren't
present, but the more of these qualities a setup has the more risk I'm willing to
take.

Trade well

Justin

LESSON 6: Trend Line Breaks

The use of trend lines is something that isn’t all that common among many
price action traders, and to be honest I’m not sure why. It seems that in an
effort to keep things simple, they’ve forgotten about the one of the most
important levels in the market – trend lines.
Don’t get me wrong, I like (and prefer) horizontal support and resistance as
much as the next technical trader. But trend lines can be an extremely
powerful asset when it comes to identifying pin bar setups.

A trend line break tells us that the trend is weakening. It doesn’t necessarily
mean that the trend is over, but it does mean we should take precaution when
trading pin bars after the break.

Here’s one scenario where ignoring trend lines would have resulted in a failed
pin bar trade.
All things considered, this looks like a perfect setup. The trend is down and
now looks to be forming a range between the levels highlighted in blue. The
bearish pin bar is well-formed and below the level. The nose is a little longer
than I’d like to see, but nothing that keep me out of the trade.

So what kept me out of the trade? More importantly, why did this pin bar setup
fail?

Because a long-term trend line was recently broken, which indicates a bullish
reversal may be in the works. Here is that trend line break.
Notice how just before this bearish pin bar formed, the market had broken out
of this down trend. This is an indication that the downtrend may be coming to
an end, thus making the bearish pin bar less reliable.

Horizontal support and resistance are extremely important, but trend lines play
an important role as well. I relate not using trend lines to driving a car with one
eye closed, you can do it but I wouldn’t recommend it.

I hope you’ve enjoyed this lesson on how trend line breaks can play an
important role in determining the quality of a price action setup.

Trade well

Justin

LESSON 7: Beware of the Hanging Man

In this lesson we’re going to talk about the “hanging man” and how not to
mistake it for a continuation pin bar. For those of you who don’t know what a
hanging man is, it’s basically a pin bar that forms at a swing high or low. The
difference between this type of pin bar and the pin bars we want to trade is
that the hanging man is inverted. It also typically occurs at support or
resistance.

Here’s an example of a hanging man at a swing high.

Although not as common, the hanging man can also occur at extreme lows in
the market. Of course the pattern would be the inverse of what you see
above.

The hanging man doesn’t mean the bulls have definitely lost control of a rally,
therefore we don’t use it as a sell signal. Instead we use it as an early warning
sign that the rally may be coming to an end.

The major difference between the hanging man and a continuation pin bar is
that the hanging man occurs at extremes – when the market is exhausted.
These points in the market are commonly found at key support and resistance
levels. The continuation pin bar on the other hand occurs closer to the
beginning of a trend.

Let’s take a look at both of these using the same chart as above.
Notice how the continuation pin bar occurs shortly after the EMAs cross over
at the beginning of a new trend. The hanging man on the other hand occurs
after the market has already rallied more than 700 pips and is now exhausted.

After some practice you’ll be able to easily identify the hanging man and know
when to stay clear of a rally that may be about to end.

Again, we don’t use the hanging man as a buy or sell signal. Instead we
simply need to be aware of this pattern so that if we see it occur while in a
trade we can react accordingly.

Trade well

Justin
LESSON 8: Putting it All Together

This is where we bring it all together. As you can see, the pin bar setup is a
simple price action strategy but one that can completely change your trading
account for the better.

However in order to truly take advantage of these setups, there are several
key characteristics that should always be present before taking the trade.

You can use this checklist as part of your own pin bar trading plan.

1. The pin bar has formed at a key level

Since identifying key levels on your charts was the first thing you did, you can
now look for pin bars that form at these levels. The pin bar should show clear
rejection of a level as either support or resistance.

2. The pin bar has formed in the direction of the major trend

Don’t fight the market’s momentum. Instead, identify pin bars that form in the
direction of the major trend. That is if a market has been making higher highs
and higher lows for six months, you should only be trading bullish pin bars, so
long as the trend is in tact. Please refer to Lesson 6 when identifying if a trend
is in tact.

3. The pin bar setup allows for at least a 1:2 risk to reward ratio

Using your key levels, ensure that you can get at least a 1:2 risk to reward
ratio out of a pin bar setup. In other words if your stop loss needs to be placed
100 pips away you should aim for at least 200 pips. But this requires you to
make sure that the next key level in the market is not less than 200 pips away
from your entry. You may want to refer to this lesson I wrote on using a proper
risk to reward ratio.

If you follow these simple rules and then use the entry and exit strategies
we’ve discussed in this course you’re sure to start profiting from pin bars.
Here is a video explaining some of the key characteristics you should be
looking for. XEM VIDEO PIN BAR 1

Finding profiting pin bar setups is all about finding setups that have the most
confluence. In essence, finding setups that put the odds in your favor. Once
you master this skill you will be unstoppable.

To become great at anything requires discipline, hard work and perseverance.

Above all it requires practice, and becoming a great Forex trader is no
exception. The best way to learn how to trade pin bars is to immediately take
what you’ve learned here and apply it to your trading. Start with a demo
account and don’t be afraid to make mistakes – sometimes that’s the best way
to learn.

To finish things off I leave you with the video that most likely brought you to
this course. I wanted to show you this again because this represents the type
of pin bar setups you should be trading. The pin bar formed with the major
trend, occurred at a key level and had a favorable risk to reward ratio. This
setup also represented a breakout opportunity, so all in all it was an A+ setup.

XEM VIDEO PIN BAR 2

To your success

Justin