Pin bars-advanced.pdf

Pin bars: advanced material

Lincoln (a.k.a. lwoo034 at Forexfactory.com forums)

This tutorial focuses on more advanced pin bar setups. It should only be read after the

introductory tutorial as it continues the same themes and assumes some knowledge of

pin bars. The source of this material consists of numerous posts by James16

( www.james16group.com ) at forexfactory.com and several other members who have

experimented with pin bars.

This tutorial covers the following topics:

•

Setting the initial stop loss Î a more aggressive strategy

•

Entering the trade early Î a more aggressive method of entering a trade based

on a pin bar

•

What to do if you get an Òalmost pin barÓ Î sometimes you will get a bar that

you think is a pin bar and this section shows you how you might play it

•

Which pins to trade? Î a short discussion on the types of pins you should be

trading

•

Trading using multiple time frames Î how you can use a longer term pin bar

to set the scene for several trades on shorter time frames.

•

Closing remarks Î some final thoughts on trading pin bars.

Legal notes: The author accepts no liability (or responsibility) for loss or damage

suffered through application of techniques or methods discussed in this file.

Permission is granted to distribute this file while the contents remain unchanged

and no charge is made.

Setting the initial stop loss

This section talks about setting a more aggressive stop loss initially. This means that

the stop loss will be closer to the entry point and will allow a better return on a

successful trade but it will be more likely that the trade will be stopped out.

There are three methods of setting the initial stop more aggressively based on the:

1) eye

2) fib retracements

3) confluence

Slightly more aggressive or experienced traders may decide to put their stop above the

level of the first eye. Again, the stop may be placed just above the level of the eye.

Looking at Figure 1 the stop loss would be placed 10 pips above the high formed by

the eye.

Figure 1. Setting a stop beyond the eye

Figure 2. Success after setting the stop!

In Figure 2 the stop has been set just beyond the eye. This is for GBPUSD, daily

chart, for 25 Jan. 2006. After the pin bar the price fell nicely and failed to hit the stop!

Alternatively a trader may place their stop

just beyond the 61.8% fib retracement of the

pin bar. If prices do go past this point then

there is a good chance that they will continue

to go further. See Figure 3 for how this stop

loss is set. Again, Figure 2 can be inspected

to see how the trade ran after this point. We

see that the prices retrace the pin to where

they may just hit the stop loss point.

An alternative aggressive approach is to

place stops just beyond a fib level or moving

average (or confluence of these) that passes

through the nose of the pin bar (this has not

been illustrated). This will produce a tighter

stop than setting the stop beyond the pin bar;

however it is still more prone to being stopped out. Under these circumstances the

trader is hoping that the confluence of factors will exert enough resistance to prices to

prevent their stops from being hit.

Entering the trade early

There are several aggressive ways to enter a trade rather than waiting for a break of

the pin bar. They get you in at better prices but there is a greater chance that the trade

will not work out. The two key methods are:

1. entering on the close of the pin, and,

2. waiting for a retracement of the pin bar.

If the trader decides to enter on the close of the pin bar they will get a better price than

waiting for a break of the pin. It is higher risk, however, as the trade is more likely to

fail. One benefit is that it will get the trader into the trade. Entering on the retracement

might not. (Prices may not retrace the pin bar at all Î they may just shoot off in the

right direction!)

When a trader decides to enter on the retracement of the pin bar they can get a very

good price. It is higher risk than waiting for a break of the pin. It also has the danger

that prices may not make it to the retracement level chosen, in which case the trader

will miss out on a good trade!

The position of the close of the pin bar will determine which of these methods would

be more profitable. If they are coupled with the more aggressive setting of the initial

stop loss it is possible to have some good trade setups, even if they are riskier.

Finally some traders may decide to enter on multiple points. They may decide to enter

a half of the trade on the close of the pin, then another half of the trade on a 50%

retracement if the prices reach this level. This way they will certainly get a half

position in place (on the close of the pin) but if the prices retrace 50% then they will

get a second half of the trade on at an even better price.

It is also possible to place a sell stop below the bottom of the pin bar as though the pin

bar was going to be played conservatively. This means that the trade will be entered

and the trader will not miss out. However, prices may first retrace some of the pin bar,

allowing an opportunity for the trader to get in at a better price than they would if they

took a conservative approach. If this happens the trader may adjust the sell stops so

that their overall risk is managed effectively.

What to do if you get an Òalmost pin barÓ

This section details what to do if the pin bar does not Òlook rightÓ.

Figure 4. How to trade this like it IS a pin bar

Shown in Figure 4 is a setup that does not qualify as a pin bar. This chart is of

October 2005 through February 2006 of the USDCAD, weekly chart. Note that the

close of the Òalmost pin barÓ is below the eye formed by the previous bar.

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