The Pinocchio Bar

Filed under: Learn Forex Trading |

I mentioned today a trade example involving a ‘Pinocchio bar’. The pin bar is something that I am often talking about, and we have briefly covered what it is in the past. So today, I would like to talk in a little more detail the ins and outs of the Pinocchio bar.

 

As mentioned earlier, the Pinocchio bar is partly named both for its image and for its characteristics. Most people simply call it the ‘pin bar’ for short, and it looks like this (see Figure 1).

Figure 1.

As you can see, it has a very long nose, just like Pinocchio has! The characteristics I was talking about are in reference to the fact that the market tricks traders into thinking that it is going to move one way, and when everybody enters the market, the market then moves the other way and takes out everybody’s stop losses. This is most likely a tactic employed by big institutional traders who have the funds to move and control markets. Whatever it is, it is a pattern that seems to occur time and time again.

 

So how is all of this useful to you as an independent trader? Well, if you look for pin bars at certain areas in the market, they can provide some very high probability setups. For example, if there is a good support area in the market, and a pin bar penetrated it, then it is probably a level that is going to hold and you could put an order in. Similarly, if a pin bar penetrated an 8-day exponential moving average in the direction of the trend, for example, then this is a reasonably strong signal and could warrant taking a trade.

 

In summary, pin bars are very useful price action signals, and used in conjunction with strong levels in the market, they can be another very valuable tool in your trading arsenal.

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