Price Action: Busted by Pin Bars

Updated: Mar 13, 2019

Rejection is good.

This guide goes side-by-side with last time’s Technical Analysis: How to Slice Charts. I had a feeling of also tapping into Price Action. Because after all those chart slicing preparations, you wait for the market to cook well-done. The patterns of the bars (or candlestick for some) give that signal just like how an oven’s timer beeps.

A bit info on bar versus candlestick difference. They actually show the same data such as the opening price, the highest and the lowest point traveled by the price, and the closing price (of the day or hour) given the time frame you’re looking at. It’s just that bars have filled “body” between the opening and closing price.


The movement of price and the pattern it makes is what referred to as Price Action. Tip: Price Action is more solid on higher time frames such as H4 (4-hourly) and D1 (Daily).

There is psychology behind every price movement. Like a tendency of a behavior. Some patterns tend to influence an upward push, some the opposite, while being caught in the middle of indecision is also a possibility. Understanding each gives you an edge to know what the market might do next.


For today, I’m sharing with you the Pin Bars and its two (2) tendencies.


1. High Test Bar/ Low Test Bar

I’d say it’s the easiest price action to spot due to its noteworthy characteristics of having a head and tail very much like a pin. The opening price was in an extreme side of the bar. The price tried to explore the opposite end but the price went back closing near where it opened.


What happened there is that the participants of the market in a particular time frame tested the price level at the opposite end of the opening price.

As if saying, “Are you ready to take it to the next level (of high or low)?” or “Oh! Looks pretty, let’s go there.”


At some point, however, the rest of the market participants would react by rejecting that level. The longer the tail, the stronger the rejection.


As a result, the price movement of the next bar is likely to go the other way.


LIKELY.


Remember, this guide is a compliment to the previous. It is a must to draw lines and navigate the chart. Because the spot where the pin bar shows up would tell apart the first tendency to the other.


2. Calling Tops/ Calling Bottoms

The other tendency is what could be referred to as “calling tops/bottoms”. These pin bars behave as if they are squeezing out what’s left of the highest or lowest level. As if doing a last call to participants to hop in before it leaves towards the opposite end of the trip.

In the photo, we have an example of similar looking Pin Bars. Tails, which in this case more appropriately called Horns, are above Head. However, they differ on its effect to the market psychology.


The first pin bar is a HIGH Test Bar since it appeared in a high ZONE (remember RESISTANCE?) Thus, the pin bar here served to push down prices.


Meanwhile, the second pin bar served as CALLING BOTTOMs as it appeared on the SUPPORT ZONE. It's as if calling participants at this bottom price level before it's about to go up. Same anatomy, different psychology.


Knowing and waiting for just pin bars saves you time and money. Because you get to decide faster and more confidently on which position to take. Plus, it’s likely a winner! As I always impart, please strive to learn more and find your style. What I share here is what worked for me.


Happy trading everyone!

Sincerely,

@marilesaca || Trading Kitten :3


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