PIN BAR

TRADING THE PINOCCHIO BAR (PIN BAR) WITH

FOUR DETAILED PRICE ACTION EXAMPLESShareTweet
The Pinocchio Bar or Pin Bar is a popular price pattern among traders who use technical
analysis. The Pin Bar is easy to spot, and you can trade it effectively within the market’s support
and resistance structure. The dynamics underlying this simple price pattern is intriguing.

In Martin Pring’s Technical Analysis Explained, he calls the pattern Pinocchio because it lies.

It lies about the market direction. And its long nose exposes its lie.

Let’s expose the Pin Bar below.

THE TRADING PSYCHOLOGY BEHIND THE

PIN BAR
To appreciate how the Pin Bar works, you will find it helpful to understand the market dynamics
it capitalizes on.

Trading breakouts is a common strategy. The usual approach for breakout trading is to place
entry orders and stop orders at support and resistance levels.

By making a momentary break of these levels, Pin Bars trigger the orders of these breakout
traders before trapping them into an adverse situation.

As the Pin Bar closes back within the support or resistance, prices make a run for the other
direction, trapping the traders.

Look at the diagram above.

Let’s say you are bullish here. It’s not surprising that you will consider placing a buy stop
order at the resistance. This tactic will create a long position for you as the market surges up and
proves your bullish hypothesis right.

Here, the market dashed up and triggered your buy stop order. But price action reversed
down within the very same candlestick.
Are you anxious now? Do you feel trapped in a losing position?

Will you consider selling your long position?

The bearish Pin Bar anticipates the selling pressure created by such anxious traders trapped in
bullish positions.

As you can see, the idea behind the Pin Bar pattern is simple. And that is why it works over a
variety of time frames. It also explains its immense popularity among technical traders.

However, like all price patterns, do not rely solely on it for taking a trade. Although the Pin Bar
works as a valid trade trigger, you can only realize its true potential by factoring in the overall
market context.

That is why it’s crucial to go through the trading examples below.

PIN BAR TRADING RULES

But before we dive into the in-depth chart examples, let’s define our trading rules.

RULES FOR LONG SETUPS

1. Bar opens above a support level

2. Bar trades below the support level for most of the range of the bar

3. Bar closes above the support level

RULES FOR SHORT SETUPS

1. Bar opens below a resistance level

2. Bar trades above the resistance level for most of the range of the bar

3. Bar closes below the resistance

Notice that our trading rules focus on the interaction between the Pin Bar and the
support/resistance levels. This approach reminds us that the market context is the key to trading
price patterns like the Pin Bar.

You’ll find some traders emphasizing the structure of the Pin Bar itself. Those rules focus on
how Pin-like the bar is. Those considerations include:

 The proportion of the candlestick shadow to the body

 The direction of the body (bullish or bearish body)

While these factors play a role in defining a Pin Bar, they are less pivotal when it comes to
taking actual trades with it. The context matters more.

For a straightforward rule of thumb, check that:

 The upper shadow of a bearish Pin Bar is at least two-thirds of the bar range.

 The lower shadow of a bullish Pin Bar is at least two-thirds of the bar range.

These are guidelines and not strict rules. Also, I do not place much emphasis on the color of the
candle body.

CONCLUSION