Understanding Candle Patterns: Pin Bar

I want to start another series of blog posts on the topic of candle patterns. You probably know how popular Japanese candles are for those who use technical analysis. In fact, some people trade relying entirely on different candle formations and they make consistent profits doing that. There are virtually hundreds of candle patterns, formations and variations. I only want to analyze a few of them; those that seem to be the most consistent and profitable. The first one we are going to look at is a pin bar candle.

A pin bar is a candle that has a long wick either up or down. If the body of the candle at the top, it is a bullish pattern, if the body of the candle at the bottom, it is a bearish candle formation. You can often see these pins before major price reversals take place. In case of bearish pin, price starts rising and usually rises through the day when suddenly sellers step in and price crashes closing at the lower end of price bar. In case of bullish pin, price starts falling and usually keeps on falling through the day when suddenly buyers step in and price keeps rising till the end of the day and closes at the higher end of price bar.

Bearish pin

bearish pin

Bullish pin

bullish pin

Below is the example of eur/gbp pair. The pair was in range from September of 2014 through December when the range was broken downwards in the beginning of January, 2015. However, if you analyze the daily chart more closely you will see that on the 16th of December, 2014 a big bearish pin bar formed on the chart. It means big selling pressure started coming from Euro bears and price kept on falling for the next three months almost without stopping.

eur/gbp daily chart (Euro collapsed after bearish pin bar formed in a range)

eurgbp bearish pin

Pin bars can also be effectively traded in a range when they form around support and resistance levels. If you see a bullish pin at support you would only be looking for opportunities to buy and when you see a bearish pin at resistance you would only be looking for opportunities to sell. As you may understand these candle formations can be found on various time frames: monthly, weekly, daily, hourly and minute chart. The higher the time frame, the more reliable those patterns are. The lower the time frame the more noise there will be and a lot of signals that will not work out.