Pin Bars Against the Trend - Forbidden Fruit is Sweet

Hello, dear friends! Today we will talk about how you can trade counter-trend pin bars. Yes, the same ones that beckon traders like fire beckon fireflies.

In fact, trade against the trend - is not the best idea. However, if you are already going to argue with the trend, it is important to know how to do it right.

The method described below came from the stock and commodity markets and is applied on Forex less frequently. Despite the fact that it has the highest percentage of working out, not all forex traders are aware of its existence.

Pin bars against the trend - why they are so tempting

By itself, the pin-bar against the trend is a very emotional character. Suppose, we have an upward trend, which appears at the top of the pin bar. The first reaction: “That‘s it, the trend is over, you can exit the position.” Or to enter if we are not yet in the market. Many people do it, succumbing to emotions.

In fact, the continuation of the trend can follow after such a candle - the price will continue to grow and will probably reverse not soon. That is, the market shook out bears willing to make money and continued to move in the same direction.

But, nevertheless, the reverse situation can also occur, and the price will really reverse, and the trend will change to downward.

Here is the question: how to recognize the bar that will be a reverse one, or won‘t. That is - how to trade the pin bar against the trend?

Entry Rules

To do this, go back a little. So, there is a strong trend 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, there is no such support in counter-trend pin bar. If the level still has to be, it can be used as an additional confirmation.

If there is no additional evidence, wait for the next candle. By the following candle after the pin bar, we must determine whether the trend is going to continue. If there is a rising candle on the chart or the price is consolidated - safely skip the entry. In this case, a trend reversal is unlikely.

If the next candle forms against the trend and, thus, has a large body in relation to its size, that is, has no visible tails, we have a good reverse signal.

We will enter the market with a pending order. Sell Stop in the case of an upward trend and Buy Stop - in the case of downward one. Orders are placed on top of the confirming candle - just below the low point if we enter a sale, and just above the high point if we enter a purchase.

Stop Loss and Take Profit

We set stop loss behind the pin bar tail. In fact, the stop-loss size may be a large enough. But, nevertheless, we consider that the entrance against the trend itself is not the most secure itself. Price, as a rule, has already held a considerable distance from the stop level to the entry point. We set take profit either twice the stop, either at the next level of support/resistance.

Examples

As you can see on the H4 GBPUSD chart a downward trend has formed. After the pin bar, we could expect a reversal trend, but the next candle was also bearish, which does not exactly indicate a change in direction of the main movement. Miss the entry.

Below we have an example of the correct setup. On the upward trend, a pin bar is formed, followed by a strong black candle. To enter, place an order at the minimum of the black candle. Stop loss at the same time will be behind the maximum pin bar, and we set take profit twice from the stop. As you can see, this entry has worked, despite the rather large stop.

After the pin bar, we have a black candle with a large enough body. We set sell stop at its minimum. Stop loss, as before, set behind the pin bar tail, for the take profit multiply the value by two. In principle, with the same success, you can fix the profit using a trailing stop.

Not all entries will be perfect. Sometimes even confirming candle does not give a sufficient momentum for the price and the trend will quickly reverse. In this case, we will get a stop-loss.

And here we have a good buy signal. At the peak following the candle pin-bar, set a stop order to buy. In this case, though hardly, but the order is fulfilled.

Conclusion

The main strategy rule - always wait for the confirming candle. Trading against the trend requires a special approach and a pin bar itself does not mean a reversal, but only talks about its possible presence. Proper setup fulfills more than 80% of cases. No confirming candle - wait for the next signal, everything is easy.

Take care, Michael

ForexTraderPortal.com