There are many ways to reach the potential profit from forex trading. This time, what MIFX will discuss is the pin bar. So that you can more easily understand pin bars, first understand how to read candlestick charts here.
What are pin bars?
This is what is called a pin bar, short for pinocchio bar. The longer the shadow, and the shorter the body, the more valid the pin bar will be. Pin bars are widely used in reversal trading strategies, namely predicting the occurrence of price reversals and using them to open positions as early as possible.
Based on the trend, pin bars are divided into two, namely bullish reversal and bearish reversal.
Bullish reversal and bearish reversal pin bar
The appearance of a pin bar in a downtrend that changes direction to an uptrend is known as a bullish reversal pin bar. Meanwhile, a pin bar that appears when an uptrend turns into a downtrend is called a bearish reversal pin bar.
The long shadow of the bullish pin bar is located at the bottom of the body. This shadow indicates rejection of the lower price, so the lower low failed to form. On the other hand, the long shadow bearish reversal pin bar is located above the body. This indicates the rejection of higher prices, so the higher point failed to form.
Trading strategy with pin bars and divergences
When viewing the chart, you will be able to find pin bars easily. However, not all pin bars have the potential to be a reversal signal. Therefore, you need to develop a strategy to achieve potential profit by utilizing pin bars. A commonly used strategy with pin bars is divergence. What is a divergence trading strategy?
Divergence is a trading strategy in which you open a position when the price chart and the oscillator indicators move in opposite directions. There are various oscillator indicators that you can use, such as stochastic, RSI, or MACD. Divergence itself is also divided into bullish divergence and bearish divergence. Bullish divergence occurs when the price chart is declining, but the indicator is rising. Meanwhile, bearish divergence occurs when the price chart moves up, but the indicators move down.
If you find a bullish pin bar, then there is confirmation of a bullish divergence, then you can open a long position. Meanwhile, if you find a bearish pin bar which is confirmed by the appearance of a bearish divergence, then you can open a short position.