The 50% Retracement of a Pin Bar

Filed under: Learn Forex Trading |

A set up that I have been taking more and more recently is what I call a 50% retracement of a pin bar – and I’d like to take you through this trade setup right now.

 

The idea behind this set up is to get a nice tight stop so that you can increase your risk-reward scenario. We also want to see a good deal of confluence at every set up  as well, so that means being at an area of support/resistance, using Fibonacci retracements,  moving averages, and off course the pin bar itself which is a good price action signal because it shows that price has move all the way in one direction and then reversed, all in one session (depending on the time frame you are looking at).

 

Figure 1.

It is always better to be visual about these things, so let me give you one example. If you take a look at Figure 1, you will see a chart with a thick blue horizontal line and a thin red horizontal line. The blue line is what I’ve used to mark an area of support/resistance on the NZD/USD 1-hour chart. As you can see, it was first an area of support, and then, after a change of polarity, it became resistance. Price then retraced to this area and formed a pin bar.

Figure 2.

Now, instead of jumping right into this trade, what we can do is wait for a 50% retracement of the pin bar. Why do this? Well, if we do this, our stop loss will be tighter and we can increase our risk-reward to at least 1:3. Figure 3 shows how this trade would have worked out (very well!). We won’t be taking as many trades by using this method as some will not retrace. But overall, we should be more profitable as our risk-reward is better.

 

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