"Pinocchio" or just a pin bar. What does this pattern mean?

"Pinocchio" or just a pin bar. What does this pattern mean?

John Dou - 08/11/2017

"Pinocchio" or just a pin bar. What does this pattern mean?

Pin-bar is a popular candlestick model among adepts of trading according to the "clean schedule" and other these price action games of yours. It is named after the famous character of children's fairy tales, whose nose grew up whenever he lied. So the pin bar shows that the market is lying about the direction of the trend. Actually, it is a candle with a large shadow (nose) and (preferably) a pair of eyes. Fiercely adored by newcomers to the world of commerce.

 

What is the problem with pin bars or why do not professionals trade candle patterns?

Not all pin bars are equally useful. The candlestick chart is a very deceptive thing and many popular candlestick patterns appear on it completely randomly. On any chart, you can easily find dozens of places where candles with large shadows appear, many of which fit the pin-bar description.

 

How does a pin bar work and how to choose your own pin?

If we consider the ideal pin-bar model as a spherical horse in a vacuum, then the principle of its appearance is quite simple. Almost always, a pin appears when the price enters a zone of increased interest, where players are ready to mass buy or sell at a market price. At the moment in the market there is an imbalance that pushes the price out of the area. In this case, candles with a big shadow appear on the chart (it seems like you put your nose where you do not need to). In this case, the correct pin bar will always go at a good volume. Moreover, it is desirable that the volume is concentrated precisely at the tip of the "nose". This will show a strong imbalance and rejection at the price level.

 

Pin bar, like a false breakdown. It happens like this. A certain strong level is formed on the chart, for which weak players traditionally hide their stops. In turn, there is also a strong player who is trying to collect a large amount for himself. To do this in the range is not always possible due to lack of liquidity. For example, everyone went on sale and no one wants to give up their deals. Therefore, at the moment, a large player can trigger the price so that it goes beyond the boundaries of the level, which will lead to the massive activation of other people's stops. Stop-los is an automatic sale and only have time to redeem other people's positions. The price immediately returns below the level by drawing the same pin bar on the chart.

 

Pin bar as a sign of a weakening trend. If the price has passed enough for the players to start taking profits on their positions, then on the chart at that moment the so-called compensation candles will begin to appear. That is, a lot of small pin-bars showing that players are massively throwing off positions. The price will either get stuck in a small range, or roll back slightly against the trend. This will be the first swallow. The next growth wave will already be much more modest, as other players will also join the process, and divergence will appear on the chart. At this point, you can already look for a good pin, as a point for entry.

 

Pin bar as a sign of correction. The essence is the same as in the previous paragraph. If the market is not ready to change the trend, then “pins” will appear on the chart in the correctional movement. In this case, it is enough to wait for a good level retest and enter the market.

These are the basic, but by no means all options for working with pin bars.

 

 

Conclusions.

Professionals who have been working with price action for a long time do not trade pin-bars. However, just like the “rails”, “beans”, “hammers”, “hara” and other candle patterns do not trade. The fact is that by the time the formed candlestick pattern appeared on the chart, it was too late to enter. Most often, the formalization of candle patterns is needed only to explain to beginners the general principles of price movement. So how to search for a specific pin-bar is always easier than the abstract "weakness of movement." Nevertheless, working with “pins” will help many newcomers to better understand the specifics of price movements and even give specific entry points to the market.

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