September 10, 2013 by Hugh Kimura

There is a lot of voodoo out there when it comes to candlestick chart patterns.  Some of it is very useful, but a lot of it is hype.

So Im going to start a series of posts exploring candlestick patterns that are actually practical.  More importantly however, we will go into WHY they are useful predictors of price action and not just settle for: some dude 3,000 years ago said that they work, so we are just going to listen to him.

These patterns are not trading systems in themselves, but could be developed into systems and certainly can be used in conjunction with other trading methods.

In this post we will take a look at Pin Bars.   They are also known as kangaroo tails, hammers and probably some other phallic references that I am not familiar with (if you have a good one, leave it in the comments below).

What They Look Like

Some people try to get all mathematical and define a Pin Bar with a strict formula.  The wick has to be twice the length of the body, blah, blah, blah.  But before we get into some examples of Pin Bars, if you are not familiar with candlesticks, the diagram below shows what they represent.  On most Forex charts, a green candle means that the close was higher than the open, and vice versa for a red candle.

Lets remember that trading is not an exact science and general concepts will get us much further than absolutes, so we are just going to say that a pin bar is any candlestick with along wick.  Here are two examples:

Why They Happen

Now that we have the basics out of the way, lets get into the psychology of why they form and why they are generally a good predictor of price direction.  A long wick signifies that the market was pushed relatively far in one direction, then was pushed back in the opposite direction, just before the candle closed.  It means that the price was not able to hold the momentum in the initial direction.  This can be a clue that price will reverse at this candle.

How They Can Be Traded

But keep in mind that it is just thata clue.  You have to take a look at the bigger picture and figure out how this Pin Bar fits into other price levels on the chart.  A common use is in conjunction with support and resistance levels.

Here are examples of horizontal and diagonal support.  Notice the Pin Bars at each touch of the support levels?  It would work in the opposite direction for resistance levels.  Although Pin Bars are not a trading system in themselves, they can be used to predict turning points in the market.

 Conclusion

There is nothing mystical about Pin Bars, they are just a graphical representation of possible shifts in market sentiment.  If you are interested in creating a trading system around Pin Bars, do some testing and see what works for you.  Get started now!

If you want to find out what professional independent trader Rafael Veron thinks are useful candlestick patterns, check out our Bubble Trading Forex Course .  He only watches a small group of candlestick patterns.

How do you use pin bars in your trading?  Leave a comment below and let me know.