Confirming pin bars

@xetatrader

I respectfully disagree with @tommor. This bar is not only a pin bar but it’s also a fakey - the long inside bar set up was triggered but then reversed.

The confirmation needed was simply breaking the low of the bar the very next day (if the bars low wasn’t broken next day in my book the signal is no longer valid)

Thre are two ways to trade this.

The first - the way I trade - I would have been out after bar 4 when the lower daily high was violated. The trade would have basically been a scratch trade.

The second, if you were to use a wider stop first at the high of the pin and then at the pivot highs trailed downwards until stopped out.

The latter you would have had an okay trade but would had to wait a while for it to come good.

Either tight stop exit earlier, wider stop wait longer.

No need to confirm anything which is not possible anyway

But the high of the “pin bar” (although it wasn’t a pin bar) was never violated, so it remained valid as a (not very important) bearish continuation bar. As such a sideways move was neither unexpected nor important.

You can’t claim confirmation of a signal which is not a signal.

@tommor

This probably proves how we all view the same set up differently.

I’m not quite sure what you mean but for me a pin bar is no long valid if it is not triggered immediately next bar

This reduces many whipsaw and losing trades I personally think - your correct the high wasn’t violated - and in some schools of thought maybe that means the set up is still on.

But maybe I’m misunderstanding your meaning

For me that was a valid signal - why do you think it wasn’t ?

@tommor

Are you saying a pin bar must occur only countertrend?

I was unaware of that.

Yes I am. Pin bar is short for Pinocchio Bar. The idea is that the long wick is like Pinocchio’s nose pointing out ahead of his face when he tells a lie. The wick above pointing above the body in a bullish direction in an uptrend is a lie, price is not going to go up, confirmation comes from breach of the low.

A long wick above a short body in a downtrend means nothing (except that price is in a downtrend, but we knew that already).

@tommor

Interesting so your saying there are no long pin bars in an uptrend and no short pin bar set ups in a downtrend?

I’m actually quite taken aback by that statement obviously no one has told Mr market because I’ve had lots of success with them so far.

I know your an experienced trader but where did you get that bit of market wisdom?

A bar with a long upper wick and a short low body in a downtrend is not even a pin bar, its just a bearish bar. Of course there’s opportunity in shorting after this, for example using a breach of the bar’s low as confirmation. But its not a pin bar. Its no more bearish a signal than any other single OHLC candlestick formation in the same downtrend.

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@tommor

I respectfully disagree with you on this topic - IMO they can lead to some stunning down moves - but it is a two bar pattern not a single bar.

My own take on pin bars is that the real body of the pin must be inside the real body of the previous bar - a harami

This is something I noticed myself over the years - maybe others have noticed it too but I’ve never read it.

Anyway that is how I personally make sense of this pattern.

I have done very well trading this set up over the years - the semantics of it is actually a pin or not are secondary to the effectiveness I’m sure you’d agree.

Impressive site.

Blackduck

Thanks @xetatrader for posting the chart.

I will try to explain as best I can using your chart. I see it’s a daily chart of the NZD but not sure what the other currency pair is. If I knew that I would be able to pull up the same chart on my computer and then mark candles so that you would understand better what I am tying to say.

So let me give it a go and if you don’t understand something let me know.

The candle you have marked with the red arrow is just a doji in what has become a down trend. The thing that interests me about that doji is that it tested the moving average and then retraced to close nearly at its open price. That is a good sign that the bears are in control. Yes there was some sideways price action before the trend continued down but that can be expected as bears that sold at the start of that trend take some profits and bulls buy betting on a trend reversal.

That line you have drawn looks like a support level and what is important is that price hung around that support level for several bars before a break down from that support level occurred. That is a great entry as you can see that the bears have taken control of the market and the bulls are not interested in buying until there is a lower price.

Just to add to what I have said what really interests me and what I was trying to explain in my first post to you, is what happens at the start of price action on that chart.

Notice the first four candles are bull candles then you have a pin bar. That says that buying is slowing because the bear candle that followed was too small to suggest that the bears are starting to take control. The next green pin bar just before that big red bear candle is more promising that there is now a lack of buyers and that selleres are moving into the market. Remember when i said that I like to wait for a retest of that first pin bar before I entered well that happened some 13 bars after that first big bear candle. It created a double top followed by a reasonable bear candle that closed on it’s low and that would have been a signal for me to go short. Even if you waited for a second bear bar which happened you still would have been in early enough to catch a great trade.

It’s easy to read a chart once you see all the candles like on this chart. it’s another to read the chart as it is happening in real time. That’s why understanding how to read price action and know what a candle is telling you is vital to taking good trades.

Hope you understand what I have tried to explain to you.

Cheers

Blackduck

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@Blackduck

The blog is a work in progress - but thanks for the compliment - I’m hoping long term in can be something of real use.

As for your analysis of the chart - again as with the to and fro with @tommor - it goes to highlight how each of us interpret even the simplest of patterns.

It doesn’t matter how you interpret that charts so long as you make money from your interpretation.

Cheers

Blackduck

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Taking a short off such a bar in a downtrend will make money, but you’re trading the trend chart pattern, not the candlestick pattern. Its going to be as effective as any other candlestick or candlestick sequence but its the strength / consistency / energy of the trend which makes the difference.

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@xetatrader

I won’t get into details is this a pin bar or shooting star or else. I call those kinds of candlesticks simply Long Tail. And here is something about that Long Tail

  • in this situation, it suggests down move
  • There is a way to confirm this Long Tail (pin bar) using the prior candlesticks
  • such Long Tails are valid only for the next few candlesticks. It depends on the size, but let’s say for the next 1 or 2 candlesticks. You expect a rather large move to follow a pin bar. Which is not correct.
  • About your screenshot, the target from the Long Tail coincides with the target from the last swing up. That was an indication that the down move might not last long.

Yes i understand what you mean and really appreciate the explanation you’ve given. Sorry I’ve been offline for some days and couldn’t reply. I was thinking of using a filter like if within the next three candles the high of a bullish pin bar isn’t broken and vice versa for a bearish pin bar, I will cancel the setup as it most likely will not happen. And I added another filter that it should be broken by a candle that has a good size of body.

What do you think about this? Though the issue I’m having through backtesting now is if i wait for the highs or lows to be breached and trade on the close of the breaching candle it might have gone too far and then reverses for a while and eventually continues, but the lenth of the retracement might trigger the stop. Something like that.

I wouldn’t do that if I were you :slight_smile: Having inside bars can strengthen the signal. If the market breaks above/below the tail of the pin bar then you can cancel (at least in most of the cases)

You do not know that, at the time of entry. Yes, the entry is the break of the high/low of the pin bar. If you wait for a too big body then the push might be over and you’ll end up buying at the high or selling at the low

You do not know that, at the time of entry. Yes, the entry is the break of the high/low of the pin bar. If you wait for a too big body then the push might be over and you’ll end up buying at the high or selling at the low

What I mean is that I’m just waiting for a break of the highs or lows by a candle that isn’t an indecision candle or another pin bar opposing the setup. Do you think this is okay? My problem with this is as you have stated the break bar could go too big and then the move might just be exhausted by then.

most often after a pin bar comes a long body bar (>50%) but the opposite pin bar is also observed often. If you have something else besides the pin bar which suggests a move into one direction the opposite pin won’t bother you

The problem is there is a lot of indecision and guesswork at SR levels especially in ranging markets as you never know where price is heading to and having a pin suggesting the opposite of my bias really bothers me, which is why i was thinking of canceling the setup if i see one. Hopefully i will find another factor to the pin bar to add and only cancel the setup when that factor doesn’t agree with my bias and a bar opposing my bias forms

Don’t try to make it perfect. That is impossible. If something bothers you, skip that trade and search for the next one.