Today I’m going to reveal one of my biggest SECRETS to trading pin bars.
And, NO, before you ask…
It’s not the: “wait for pins with big wicks at technical levels” nonsense every other fake price action guru spouts – we’ve all heard that before.
Instead, I’m going to show you how to determine why a pin bar has formed.
If you’ve read any of my other pin bar articles, like the one I sent a couple weeks back, you’ll know why a pin forms is the single biggest factor in whether it’ll cause a reversal… NOT if it has a big wick or forms at the right technical level, like most guru’s say – those things are still important, but not as much.
You need to understand the why, and that’s what I’m going to explain today.
I’ve come up with a simple method of analyzing the construction of a pin on a lower timeframe to gauge whether it’s developed for the right reasons, reasons that indicate a reversal is likely.
With my method, you’ll know how to quickly determine why a pin bar has formed and decide whether it’s worth trading or not. This will allow you to trade MORE pins that have a high probability of causing a reversal and AVOID most of the low probability pins that hardly have a chance of being successful.
So, ready to learn what this method is all about?
Here we go…
Why Do Good Pin Bars Fail To Cause Reversals?
When you analyze a pin bar to figure out whether it has a high probability of causing a reversal or not, what’s the most important thing you look for?
Probably a big wick, right?
You see if a pin has a big wick and whether it’s formed in-line with any technical points.
But tell me…
How many times do you see a pin form with a big wick at a support or resistance level or some other technical point and then fail, even though it had everything going for it?
… I already know the answer.
You might think is random… pins fail all the time; that’s trading, right?
BUT, it’s not – these pins actually fail for a simple reason… it’s got nothing to do with the wick or what technical points the pin formed at.
“Good” pin bars fail because they form FOR THE WRONG REASON.
Let me explain why…
Pin bars are created from the banks buying and selling. In most cases, from placing trades or taking profits, but some also form when from them closing trades too… but these are much rarer. The banks place their trades or take profits, and price moves in the opposite direction, creating a pin bar.
Now sometimes, these pins result in big reversals…
Pin bars that form from the banks placing trades naturally initiate large reversals, as you would expect – if the banks enter big buy trades, they obviously want price to rise so they can make a profit; why else would they buy?
These pins aren’t an issue… they’re the ones we want to find and trade.
The REAL problem are profit-taking pins – pins that form from the banks taking profits.
These are the most common type of pin bar – I’d say they make up at least 80% of the pins you see. They form, as you can guess, from the banks taking profits off their trades… which is a BIG problem. Why? Well, if you take profits, what do you expect price to do afterward; reverse, or keep moving in the same direction?
You want price to KEEP MOVING IN THE SAME DIRECTION.
Because then, you can make more profit off your trade – and who doesn’t want more profit?
So, if a pin bar develops from the banks taking profits off their trades, does it have a high probability of causing a reversal?
NO, it doesn’t!!
And since profit-taking pins are the most common type, do you think most traders are trading good pin bars or bad pin bars? They’re trading BAD PINS. If you haven’t had much success trading pin bars up to this point, it’s probably not because you were doing anything wrong…
It’s because you were trading profit-taking pin bars: pins that NEVER had a high chance of being successful in the first place.
If you really want to improve your trading of pin bars, you MUST learn how to determine why they’ve formed; is it from the banks taking profits, placing trades, or closing trades?
The question now, of course, is how do you do that?
And here’s the answer…
Why The Construction Of The Pin Matters
Have you read my book: Pin Bars Revealed?
In the book, I explain how to figure out why a pin bar has formed. By looking at WHERE a pin appears and thinking what action by the bank’s action led to its creation – taking profits, closing trades, placing trades – you can determine, usually with a high degree of accuracy, the reason it formed, and whether it’s worth trading or not.
However – this method is NOT easy to implement.
It requires a deep understanding of how the banks operate to get right – not something you pick up and learn in a day, even with my many books and lessons.
Luckily, I’ve come up with much easier way to figure out why a pin has formed…
The best way to quickly determine why a pin bar has formed… is to look at how the pin is constructed ON A LOWER TIMEFRAME.
What do lower timeframes show us? More detailed price information.
We get more time intervals, allowing us to get a closer look at what went on in the market.
With pin bars, this means we can see exactly how they formed… how the pin really developed. Did the pin form due to a sharp move, or was it made up of small candles? We can use this to gauge how much momentum (force) came into the market, making it easy to tell whether the pin developed from the banks placing trades, closing trades, or taking profits.
If a pin formed from the banks placing trades, we should see strong momentum on the lower timeframes.
So, if a bullish pin on the 1-hour timeframe develops from big candles on the 15-minute, that pattern probably developed from the banks placing buy trades – them placing sizable positions would initiate a sharp rise, which would show as big candles on the 15-minute timeframe.
On the flipside… if a pin formed from profit taking or the bank’s closing trades – both low probability signals price will reverse – we should see low momentum (small candlesticks) on the 15-minute timeframe.
Let’s look at a real-world example…
Here’s a bearish pin/doji that formed on Eur/Usd a while back – I treat dojis the same as pins, FYI.
From the outside, this pattern looks like the perfect pin – big wick, small body, forms at a powerful support level – it also has confluence with a fib level.
This pin has all the hallmarks of being a great trade, but how does it look on the lower timeframes?
YEH – not looking so hot now, is it?
On the 15-minute, we can see this pin formed from 4 small candles.
The first candle was a bull candle, and in this case, a big one. Price cutting into this created the wick – giving us the impression the pin was a good signal. Candle 2 was the first bear candle, but it was tiny compared to the bull candle – not a good sign. Remember: small candles indicate low momentum.
If the banks place trades to make price reverse, that’ll show as high momentum, i.e – big candles, like engulfs and outside bars.
Candle 3 is also small, though slightly larger than candle 2.
Again, this is further evidence of low momentum. Price is falling, yes, but it’s doing so with small candles that indicate low momentum – a sign the pin hasn’t formed from the banks placing trades but taking profits or closing trades.
The final candle – candle 4 – is another small bear candle that pushes price to the open of the initial bull candle. This causes the pin to have an equal close – something that makes it look even more promising, funnily enough.
Do you see what I mean now – why this pin had a low probability of being successful, even though it looked great on the 1-hour?
From the outside, this pin looked amazing! It met all the right criteria – a big wick, small body; it formed at multiple technical levels with confluence… a great pin in anyone’s books!
However, when we dug down into its construction… we can see it wasn’t a great pin at all.
While it had a big wick on the 1-hour, the 15-minute revealed the wick developed from small bear candlesticks – a sign there was little momentum behind the move.
No momentum = no interest.
So this tells us the pin probably formed from the banks taking profits or closing trades… NOT placing trades to make price reverse, which is what we want to see.
What Good Pin Bars Look Like
So, now you know how low probability pins are constructed – via small candlesticks that show low momentum – let me show a few examples of high probability pins… then you can locate them yourself.
With high probability pins, the key thing to remember is:
One big candle MUST form in the direction of the reversal. So, for bullish pins, you want to see at least one big bear candle on the lower timeframe. For bearish pins, watch for a big bull candle.
A big candle, especially if it’s an engulf, indicates high momentum (force) behind the move.
That tells us the banks probably created the pin from placing trades. And why would they place trades? Because they want price to reverse and move in the opposite direction!
So, if we see a big candle, we know the pin has a high probability of causing in a large reversal.
Here’s a nice looking bearish pin bar that formed on the 1 – hour timeframe.
Let’s move down to the 15 minute – don’t worry, I’ll give you a list of the different timeframes to use in a minute – and look at how this pin is constructed, see if it has a good chance of causing a reversal or not.
Straight away, what can we see… a big bear candlestick!
The pattern formed when price climbed higher (candle 1 – the first candle is always the start of the hour), rose again slightly on candle 2 before starting to fall (candle 3). We then saw a large bear candlestick form (candle 4) before the pattern completed and price fully reversed.
With candle 4 being so big, we know the banks probably created this pin from placing sell trades… the big candle tells us there was significant momentum behind the move – a typical signal the banks entered large sell trades.
So we can take the trade with the confidence of it being a high probability pin.
BTW – you can also use this method to check pins on other timeframes…
Here’s another pin, this time on the daily chart of GBP/USD.
As you can see, this pin bar has all the typical characteristics of being a great pin.
The question is, how is it constructed on the lower timeframes?
Let’s find out by looking at the 4-hour timeframe.
Here, we can see the pin formed from a sudden sharp move higher – what does that tell us?
It shows there was significant momentum behind the move, meaning: the pin probably formed from the banks placing buy trades, making a reversal likely.
And, as we can see…
Soon after the pin completed, price reversed, and a large up-move ensured – confirmation the bearish pin formed from the banks placing sizable buy trades into the market.
Not bad, eh?
If you’re going to use this method of analyzing pins, make sure to check the following timeframes:
- 5 Minute Pin Bar – Check 1 Minute Timeframe
- 15 Minute Pin Bar – Check 5 Minute Timeframe –
- 30 Minute Pin Bar – Check 5 Minute Timeframe – could be multiple big candles here.
- 1 Hour Pin Bar – Check 15 Minute Timeframe
- 4 Hour Pin Bar – Check 1 Hour Timeframe
- Daily Pin Bar – Check 4 Hour Timeframe
- Weekly Pin Bar – Check Daily Timeframe
Also, remember to look at the construction of the pin from the beginning of the period – e.g, that hour for 1-hour pins – to the open of the next candle. So, if you analyze a 1-hour pin… look at the four 15-minute candles it’s constructed from starting with the candle at the open of the hour to the candle before the next hour begins.
That’ll give you the complete picture of what price did to cause the pin to form.
Things To Remember…
Before you go off and start using this method yourself, here’s a few key points to remember…
1. Good Pins Can Still Fail (And Will)
I know it’s obvious to most, but this method I’ve shown you today isn’t a silver bullet: even if a pin has the right features and is constructed properly, sometimes it will still fail.
Unfortunately, that’s just the nature of trading.
We can’t get everything right 100% of the time; it’s impossible!
We can only try our best to increase the probability of our signals being successful – pin bars in this case. No magic tricks or techniques will instantly allow you to find the best pins and never lose again; it doesn’t exist! Today’s method will help, but continue to watch for pin’s from technical points – S & D, S & R, fib retracements, etc.
The more factors a pin bar has in its favor, the more likely it is to result in a successful reversal.
Seeing a pin with a favorable construction develop from a big candle on a lower time is a great signal on its own, but not enough to warrant a trade entry. Other factors must have confluence with the pin to make it a valid opportunity.
Here’s a quick list of some of the best confluence factors I look for…
- Support and resistance levels.
- Supply and demand zones.
- Big round numbers – prices ending in 00,000, or 0000.
- Fibonacci retracements.
2. You DON’T Need To Analyse Pins That Form At S & D Zones
Analyzing the construction of a pin should be done FOR ALL PINS, whether they form at support and resistance levels, fib retracements, or any other technical point of significance. However, one exception to this…
Supply and demand zones.
Why don’t we analyze these pins, you ask?
Well, supply and demand zones develop from the banks buying or selling at a defined point – the zone.
So… why do we need to analyze the pin? It’s pointless! We already know whatever pattern forms inside the zone is from the banks buying or selling to take profits or place trades – or close trades in rare cases.
We don’t need to look at the construction of a pin – it’s not important!
The zone itself reveals what the banks are going to do from why it formed – for example, RBR/DBD zones form via profit-taking, so any pin bar that appears inside more than likely developed from profit-taking… no need to check.
Supply and demand zones are the only exceptions to this, however…
For every other level or technical point: Check how the pin developed on a lower time frame before trading.
Figuring out why a pin bar has formed is by far the most important part of trading them. And with my method, you now have a clear way to quickly and easily gauge what’s caused them to appear.
Test this out on some old pins, get a handle on how the method works.
REMEMBER: watch for a big candlestick. Big candles = strong momentum = banks placing trades. If a pin has developed from a big candle on a lower timeframe, it’s more than likely because the banks are placing trades. Cross check that with some other points of confluence – S & R, for example – and you probably have a good trade on your hands.