Pin Bar Candlestick Trading Strategies

Pin Bar Candlestick Trading Strategies http://www.financialtrading.com/ In viewing what candlesticks can tell you about the market sentiment, the "pin bar" group of candlesticks is an important set that you will frequently encounter. They are called pin bar candles because they resemble pins, with short bodies of either colour and a long wick or shadow in one direction, either up or down. From what we know about how candlesticks are drawn, this shape represents that the closing price of the session is very nearly the same as the opening price, but during the session the price moved a long way in one direction before coming back. How it is interpreted depends on where it appears on the chart, as well as whether it is the upper or lower wick which extends. There are really four different candle signals. If the pin bar appears in an uptrend, with a longer lower wick extending below a short body, the candlestick is called the Hangman, so called because it looks like a person who has been executed with legs hanging down. This happens when traders, seeing the price going down in an otherwise uptrending market, rush to buy at bargain prices, which pushes the price back up. Often the Hangman signals a reversal, with the prices continuing with a downward trend on subsequent days. Similar looking to the Hangman, the Hammer occurs in a downtrend. For this candle, there is strong selling at the opening of the session, but the market recovers to close back up. Often it is thought of as hammering out a bottom to the market, and the price reverses to an uptrend. The other two pin bars are when the wick extends up above a short real body, which can be either colour. The one that occurs in an uptrend is called a Shooting Star, and you can imagine it looks like a shooting star with the tail upwards from the bright star below. As before, the short body means that the bulls and bears are battling for control. The bulls have been in control during the uptrend, but when the price rises during this trading session it is pushed back down by the bears. This suggests that a balance is starting to emerge, thus this candlestick may again herald a reversal. Finally, the fourth pattern looks the same as the Shooting Star and is a short body with a long upper wick. It occurs in a downtrend and is called the Inverted Hammer. The price starts low and rises strongly, but by the end of trading has given up most of the session's gains. You might be forgiven for thinking this is a bearish sign. Even so the short real body shows some indecision and perhaps a change in the market, so once again the Inverted Hammer will often occur at a point of reversal, before the price starts increasing. With all these pin bars, the short body gives you the clue that the market is in a state of flux, and that you should watch out for a reversal. You need to see where the price goes on the following session to see whether the candle signal has worked.

Comments