Pin bar candlestick is a special type of Japanese candle. It has a distinct shape that makes it easy to identify on your chart. This guide will teach you how to use this candle type to trade on IQ Option.
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What is a pin bar candlestick?
The pin bar candlestick has a small body. It also has one long wick which is at least two-thirds the overall length of the candle. The opposite end of the candle body can have a small wick or not.
This special candle represents a sharp price reversal or rejection and often appears along a trend. Therefore, you should expect to find bullish and bearish pin bar candles on your chart. In addition, pin bars are only useful for trading when markets are trending.
What does a bullish pin bar mean?
This pin bar signals an impending uptrend. During a downtrend, this pin bar forms at the trend exhaustion point. Its small body forms at the top with a long downward-pointing shadow. This shows that as sellers pushed prices lower, the bulls jumped in driving prices higher. Once this candle forms, you should enter a buy position.
Bearish pin bar candlestick
This pin bar signals an impending downtrend. During an uptrend, the bearish pin bar forms at the trend exhaustion point. Its small body is at the bottom with a long upward pointing shadow.
This indicates that buyers are trying to push prices higher. However, the sellers jumped in and drove the prices lower. Once the pin bar is completely developed, you should enter a sell position.
Two ways to trade using pin bar candlesticks on IQ Option
In order to effectively trade using pin bar candles, you must ensure 2 conditions are met. First, you must wait until the pin bar is fully developed. The longer the pin bar tail, the better. Second, the pin bar must form during trending markets.
Trading using pin bar candlestick during trending markets
As mentioned before, pin bar candles are a signal of trend exhaustion. So if a pin bar develops along an uptrend, it's a signal that the trend is about to reverse and vice versa. If you're using 1-minute interval candles and you notice a pin bar develop along a trend, wait until it's fully developed. Then, enter position in the reverse trend.
Note that if you're using 1-minute interval candles, your trades should last about 5 minutes.
Trading pin bar candles based on their color
You might have noticed that bullish pin bars can be orange in color. On the other hand, bearish pin bars can be green in color. So how can you trade pin bars using their colors?
The answer lies in the nest candle that forms after the pin bar. If a bullish pin bar appears, the next candle will very likely be green in color. Conversely, if a bearish pin bar appears, the next candle will likely be orange in color. So if a green candle develops after a pin bar, you should enter a buy position. If an orange candle appears after a bearish pin bar, you should enter a sell position.
Meaning of pin bar on the chart
For those who follow the candlestick analysis, this pattern is a strong signal of a future trend reversal. If the wick of a pin bar candlestick points up the price is predicted to go down.
If the wick of a pin bar candlestick points down that price is predicted to go up.
Ideal pin bar
Traders consider an ideal reversed pin bar a candlestick with two comparable obligatory criteria:
- Pin bars open and close levels are placed next to the previous bar closing near either the top or the bottom.
- Pin bars open and close levels are placed within the previous bar known as the left eye.
In this case most traders consider this pin bar to be a powerful signal for the purchase of the option.
A final word on the pin bar candlestick
Pin bars are one of the most popular candlestick formations. As with other patterns, they must be preceded by a directional movement of the price. A bullish pin bar should be preceded by a downward movement. A bearish pin bar, on the other hand, is only relevant if it is preceded by an upward movement. A trade based on pin bars is best confirmed by an additional element derived from chart analysis. Horizontal support and resistance levels, trend lines and Fibonacci levels will work great as confirmation.
Some traders also use pin bar candlestick with technical analysis indicators. Here, long term moving averages, such as the EMA200, work well. Indicators drawing a price channel like Bollinger Bands, Keltner Channel or Donchian Channel can also be helpful in indicating places on the chart where the price can make a pin bar turn. In the case of channels, the upper and lower barriers will just define potential turning points.
At IQ Option Wiki you can read other articles on how to trade pin bars and how to combine pin bar with Bollinger Bands to find great trading opportunities.
Now that you've learned about the pin bar candle and how to trade with it, try it out on your IQ Option practice account today. Then, share your results in the comments section below.
Good luck!