Pin Bars Against the Trend - Forbidden Fruit Is Sweet

Hello, dear friends! Today we will talk about how you can trade countertrend pin bars. Yes, those very ones that lure traders in as if they were the glow of fireflies.

In fact, trading against the trend is not the best idea. Nevertheless, if you are already set on arguing with the trend, it is important to know how to do it correctly.

The trading method described below came from the stock and commodity markets; it is not used as often in Forex. Despite the fact that it has a fairly high success rate, not all Forex traders know that it exists.

A pin bar against the trend is in itself a very emotional pattern. 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 yet in the market. Many do exactly that, giving in to emotions.

In reality, such a candle may very well be followed by a continuation of the trend: the price will keep rising and, possibly, the reversal will not come soon. In other words, the market shook out the bears who wanted to cash in and continued moving in the same direction.

But, nevertheless, the opposite situation may also occur, and the price will indeed reverse, while the trend changes to a downtrend.

That is the question: how to recognize that very bar which will become a reversal one, or will not. In other words, how do you trade a pin bar against the trend?

To do this, let us go back a little. So, a clearly pronounced trend has formed on the chart. A pin bar has appeared. First of all, we check whether there was support in the form of a resistance level at the level of the formed candle. But, as a rule, countertrend pin bars do not have such support. If such a level does exist, it can be used as additional confirmation.

If there are no additional confirmations, we wait for the next candle. It is exactly by the candle following the pin bar that we must determine whether the trend will continue. If a bullish candle appears on the chart or the price consolidates, we confidently skip the entry. In that case, a reversal of the trend is unlikely.

If, however, the next candle forms against the trend and at the same time has a large body relative to its size, that is, it has no noticeable tails, we have a good reversal signal.

We will enter the market with a pending order. A Sell Stop in the case of an upward trend and a Buy Stop in the case of a downward one. We place the order at the top of the confirming candle: a little below the low point if we enter for a sale, and a little above the high point if we enter for a buy.

We place the stop loss behind the tail of the pin bar. In fact, the size of the stop may turn out to be quite large. But still, keep in mind that entering against the trend is not the safest thing in itself. By the time of entry, the price has usually already traveled a significant distance from the stop level. We set the take profit either at twice the size of the stop or at the nearest support/resistance level.

As we can see, a downtrend 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 candle also turned out bearish, which definitely does not indicate a change in the direction of the main movement. We skip the entry.

Below we already have an example of the correct setup. In an uptrend, a pin bar forms, followed by a strong black candle. For entry, we place an order at the low of the black candle. The stop loss will be located beyond the high of the pin bar, while we set the take profit at twice the stop. As we can see, this entry worked out despite the rather large stop.

After the pin bar, we have a black candle with a fairly large body. We place a Sell Stop at its low. As before, we set the stop loss behind the tail of the pin bar; for the take profit, we multiply the value by two. In principle, with similar success, a trailing stop can be used to lock in profit.

Not all entries will be ideal. Sometimes even the confirming candle does not give the price enough momentum, and the trend quickly recovers. In that case, we will take a stop.

And here we have a good buy signal. At the high of the candle following the pin bar, we place a buy stop order. In this case, although only just, the order worked out.

The main rule of the strategy is to always wait for a confirming candle. Trading against the trend requires a special approach, and a pin bar by 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. No confirming candle means we wait for the next signal; it is all extremely simple.

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Best regards, Pavel Vlasov TradeLikeaPro.ru