So I entered the trade on the following bar but had much too close of a stop and got stopped out. The dark blue line is a support line that I drew. The red downtrend line was then broken by the following bars, price retraced and then shot up. Was this a valid trading signal setup? Assuming that I get better at setting stops, this would have worked well. Or would you consider this not to be a valid pinbar?
yep, that’s a pinbar alright, if you are totally unfamiliar with candlesticks, ‘Candlestick Trading For Dummies’ is very good, it’s much more than for dummies.
A pin bar indeed, at support. Wick of the pin bar was a fake out. If you go to a lower time frame(10m, 5m) after pin bar formation you would also see a clear inverse H&S.
Candlestick formations will be one crucial element in your trading, it will be the foundation of your apprenticeship, learn it and learn it well my friend…
Thanks everyone for your advice. I have ordered the candlestick book and will read the links that you have posted above on price action. This is a great forum. I appreciate the support and advice.
You don’t explain why you chose to draw your support line where you did but please let me make the following comments:
If your support line was based on a 15 minute chart, this time frame is generally going to be too short to have any real meaning. The longer the time frame the more meaningful the level of support (or resistance).
Ask 100 traders to draw lines of support and resistance and they’ll all place them differently.
I believe support “lines” are misnamed. I prefer support “areas” or, as I like to call them, support “bands”.
Despite my comment in point 1, I attach a GBPUSD M15 chart with my view of an M15 support/resistance band, which is 30 pips deep. Maybe you would choose slightly different parameters but, based on M15 price action over the past few days, I expect you’d be in broad agreement. I would consider any pin bar that touches the edge or occurs inside this band to be a possible reversal signal. The tail of the pin bar you chose didn’t fall much below the previous low so, for me, it looked a bit questionable. I like to see the tail hanging in the wind but, nevertheless, on this occasion it worked out OK.
Personally, I always place my stop loss a couple of pips below the low of the pin bar, which in this instance would have kept you in the trade.
BTW, you can see from the red chain line that I’m long from 1.6078 and have been since the open on December 11th. However my entry was based on the daily chart because I believe the longer time frame offers far more reliable signals and because I find watching short time frames boring, stressful and unprofitable (I generally give back today what I earnt yesterday, which is precisely what the brokers want) and, frankly, a complete waste of my precious time. At the time of writing this I’m up almost 100 pips and I’ve only looked at the chart once a day at the close. So let me say to all the bored, stressed and unprofitable traders, please seriously consider trading the daily chart. You’ll likely never look back.
Thank you for your comments. That is interesting what you say about the support and resistance being more of a band. I really didn’t have much logic for drawing my support line other than to see where a line would touch a couple of reversal points in the past history of the chart. So for future pinbars, I should look for a stronger pin that goes beyond a recent low or high but then also use this on a higher timeframe chart. I have read multiple posts on the forum here recommending to use the higher time frame charts. By the higher time frame, do you recommend daily or 4 hour charts? I think I read somewhere else here that anything lower than 1 hour may give false signals. I imagine that this is probably different for different traders and what their preference is but there seems to be a general theme here to go with higher timeframe charts.
The support line I agree with though I would have traded this thing slightly differently.
Stop loss a couple of pips under the pin bar
Exit after 2 candles - Look at the wick on that thing. Sellers are really coming in. Signal to close. If you did not close the candle following sure is a signal to close, a big bearish engulfing candle.
Open another position 6 candles after pin bar. Bullish engulfing on support line.
Closed at pin bar on resistance level 4 candles after.
Do not underestimate engulfing candles. Pin bars are great but engulfing candles can tell us a lot.
Some videos that may help: OneTwo
I just wanted to take a moment to thank everyone for their responses. I have found BabyPips to be very informative and am appreciating all of the information and your feedback on my question.
When you trade a pinbar you want to place your stop below the wick. The signal is considered valid until price closes below the pin- but since traders will usually put a Stop Loss there it’s usually more that the price just descends that far. And you’re right, that would have been a win for you had the Stop been placed properly. Nothing like experience to teach! Good luck out there.
