Pin Bars Against Trend - Forbidden Fruit is Sweet
Hello dear friends! Today we’ll talk about how to trade counter-trend pin bars. Yes, those who attract traders to themselves like fire of fireflies.
In fact, trading against the trend is not the best idea. Nevertheless, if you are already going to argue with the trend, it is important to know how to do it right.
The trading method described below came from stock and commodity markets; it is not so often used in forex trading. Despite the fact that he has a rather high percentage of mining, not all Forex traders are aware of its existence.
Pin bars versus trend - why are they so beckoning
By itself, the pin bar against the trend is a very emotional figure. Suppose we have an uptrend, at the top of which a pin bar appears. The first reaction is “That's it, the trend is over, you can exit the position!”. Or enter if we are not already in the market. Many do so, succumbing to emotions.
In fact, such a candle may well be followed by a continuation of the trend - the price will continue to rise and, possibly, the reversal will not be soon. That is, the market thus shook the bears wanting to profit and continued to move in the same direction.
But, nevertheless, the opposite situation may occur, and the price will really unfold, and the trend will change to a downtrend.
This is the question: how to recognize the very bar that will become a reversal, or will not. That is, how to trade a pin bar against a trend?
To do this, let's go back a little. So, a pronounced tendency has formed on the chart. A pin bar appeared. First of all, we check whether the support was in the form of a resistance level at the level of the formed candle. But, as a rule, counter-trend pin-bars do not have such support. If the level still has a place to be, it can be used as additional confirmation.
If there are no additional confirmations, we are waiting for the next candle. It is by the candle next to the pin-bar that we must determine whether the trend will continue. If a rising candle appears on the chart or the price consolidates, we safely skip the entry. In this case, a trend reversal is unlikely.
If the next candlestick is formed against the trend and, at the same time, has a large body in relation to its size, that is, it does not have noticeable tails, we have a good reversal signal.
We will enter the market with a pending order. Sell Stop in case of an uptrend and Buy Stop in case of a downtrend. We place an order at the top of the confirmation candle - just below the low point if we enter the sale, and slightly above the high point if we enter the purchase.
Stop Loss and Take Profit
Stop loss set behind the tail of the pin bar. In fact, the size of the stop may be quite large. But, nevertheless, we take into account that the entry against the trend in itself is not the safest. The price, as a rule, by the time of entry already passes a significant distance from the stop level. We set take profit either twice as much as a stop, or at the closest support / resistance level.
As you can see, a downward trend has formed on the H4 GBPUSD chart. After the appearance of the pin-bar, one could expect a reversal of the trend, but the next candlestick also turned out to be bearish, which does not exactly mean a change in the direction of the main movement. Skipping entry.
Below we already have an example of the correct setup. A pin bar forms on the uptrend, followed by a strong black candle. To enter, place an order at the minimum of the black candle. In this case, stop loss will be behind the maximum of the pin bar, and take profit set twice as much from the stop. As you can see, this entry worked, despite a fairly large stop.
After the pin-bar we have a black candle with a rather large body. At its minimum we set Sell Stop. Stop loss, as before, we set behind the tail of the pin bar, for take profit we multiply the value by two. In principle, with a similar success, you can use a trailing stop to take profit.
Not all inputs will be perfect. Sometimes even a confirmation candle does not give the price enough momentum, and the trend quickly recovers. In this case, we get a stop.
And here we have a good buy signal. At the maximum of the candle following the pin-bar, we set a stop order for the purchase. In this case, albeit a stretch, but the order worked.
The main rule of the strategy is to always wait for the confirmation candle. Trading against the trend requires a special approach, and the pin bar itself does not mean a reversal at all, but only indicates its possible presence. The correct setup works out in more than 80% of cases. There is no confirmation candle - we are waiting for the next signal, everything is extremely simple.