If you are contemplating making consistent gains from forex trading, learning to analyze price action charts is of utmost significance. Understanding candlestick formations and their various patterns is essential to successfully analyze the market. In this article, we will discuss the simplest of all candlesticks; The Pinbar – Originally called Pinocchio Bar because its shape resembles the nose of the cartoon character Pinocchio.

What Is a Pinbar?

A pinbar is a kind of candlestick that is widely used in forex trading. It is a powerful price action set up. As you know, the price often fluctuates in a forex market – it can move in an upward direction (when the price increases) or in the downward direction (when the price falls). When the direction of the price movement changes, it is called a reversal. And a pinbar is an indicator of a potential reversal pattern in the market.

The Concept Of a Pinbar

Let’s suppose the current price of an asset is at 200. Due to sellers gaining strength, the price falls down to 100. As buyers gain strength, they pull the value up from that level and back to the 200-mark. This is called a reversal pattern. This is how a pinbar is formed. When such a reversal happens in the market, there is a greater chance for the trend to continue in the coming days. And when these patterns appear in the event areas or areas of buyers’ and sellers’ interests, they work better.

Why Are Pinbars Important?

Pinbars are often indicators of a great force in the markets – either a buying or a selling force. Hence, they can be used as a signal for price movement and trends. This makes a pinbar, a powerful price action trading signal in both the stock and forex markets. They form frequently and appear on all time frames and are the simplest method of using price action charts. Therefore, if you are a forex trader, you must know how pinbars work and how they can be used in your favor.

What Does a Pinbar Look Like?

The characteristic feature of a pinbar is a lengthy wick in one particular direction. This is called the tail of the pinbar. A pinbar will also have a body that resembles a small rectangular box. Sometimes, the wick extends beyond the body, which is called the nose of the pinbar. The following image shows these characteristic features of a pinbar:

How To Distinguish Pinbars From Other Candlesticks?

As there are many similar-looking candlesticks in a price action chart, it’s quite natural for beginners to mistake them. Basically there are 3 conditions that identify a candlestick as a pinbar:

⇀ It opens and closes within the previous bar

⇀ The wick is at least 3 times the length of the body

⇀ The wick must stick out from all other candles

Now, look at the image provided below showing valid and invalid pinbars.

As you can see, there are many valid pinbars but for some of them, the body is on the top and for others, it’s on the bottom. What does this mean? That takes us to the next question:

What Are The Different Types Of Pinbars?

A pinbar can be either bullish or bearish. It is the wick that helps us quickly identify whether a given pinbar is a bearish one or a bullish one.

1.          A Bearish Pinbar: If the wick is long at the top with the body towards the bottom, it is to be construed as a bearish pinbar. Sometimes the body of the candle can’t be found right at the bottom, but it will always be found on the bottom half of the candlestick. What it suggests is that the price has fallen in the period of the candlestick from the starting point of the wick to the bottom line of the body. Or in other words, sellers became active or great selling power has come to the market which has pushed the price down to the bottom level.

2.          A Bullish Pinbar: A bullish pinbar looks similar to a bearish pinbar; however, the body is found at the top of the candle instead of the bottom. Again, it may not appear right at the top. Still, it’s to be treated the same as all other bullish pinbars. The body at the top suggests that buyers became active or great buying power has come to the market which has pushed the price up to the top level.

Are Pinbars Indicators Of Winning Trades?

Not at all! Although pinbars are a strong signal for trading, it’s important to understand that not all pinbars that appear in a price action chart are a signal for taking a trade. Pinbars are not to be considered as the sole criterion for entering a trade. There are many other factors as well that must be considered. However, a clear understanding of how to trade using pinbars is essential for potentially making consistent gains.

In short, pinbars are easy to spot in any chart, they appear every now and then, and learning pinbars is easy. If you can master trading strategies using pinbars, you can increase your winning ratio.

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About Author

Mithun Girishan is the founder of MMM (Mithun’s Money Market), a consulting firm providing quality training programs in capital markets. He is an investor, trader, coach and a continuous learner. In addition, Mithun provides consultation and mentorship to many retail investors and company directors across the globe for investments, trading and hedging their wealth in stocks and futures. His passion lies in exploring new avenues in financial markets as well as learning theoretical and practical economics and its application in daily lives. This has exposed him to a wide range of markets spanning from equity, commodity, forex, futures to options.

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