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As a general rule, the tail should make up at least two-thirds of the entire pin bar. Notice how the tail on the two pin bars in the illustration above are much more pronounced than the rest of the structure. Next is the body. The body represents the open and close of a pin bar and can vary in size. The first rule about the tail should help keep you in line.
After all, if the tail is at least two-thirds of the candlestick, then the body should be relatively small. The nose of the pin bar, which is sometimes nonexistent, is important only as it relates to the tail and body.
Just know that the nose should be as small as possible, much like the image above. Why do I trade it? When it comes to Forex candlestick patterns, the pin bar is by far my favorite. This pattern triggered a sharp move higher back to previous swing lows, which acted as resistance.
On the second retest of resistance, sellers came out in force and eventually formed a bearish pin bar. This particular candlestick formation triggered a pip drop over the next eighteen sessions. I wrote a more detailed lesson on the pin bar where I get into what makes a tradable setup as well as where to place your stop loss and target.
This observation is especially true for those trading anything less than the daily charts. Take a peek at the video below where I explain the characteristics of the inside bar and an easy way to determine if one is bullish or bearish. So what makes the inside bar so lucrative? When it comes to Forex candlestick patterns, the inside bar is my second favorite pattern to trade.
An established trend is a requirement for trading this particular candlestick pattern. The reason for this is that the inside bar is nothing more than consolidation. So we have a strong trend followed by consolidation which leads to a breakout in the prevailing direction. Pretty simple stuff, right? Note that the pair had been in a downtrend for several months, therefore these are bearish continuation patterns. You could make the case that the first signal in the chart above was also a pin bar, and I would agree.
The combined rejection of former support and consolidation made for an incredibly profitable trade setup. To learn more about inside bars, including which ones to trade and which ones to avoid, check out my detailed lesson on trading the inside bar pattern. Unlike the inside bar that we just studied, this formation most often signals a reversal in the market.
Why do I call it a misunderstood pattern? Because it takes more than an engulfing candle to warrant a position. To be considered tradable, an engulfing candle must develop at a key support or resistance level and after an extended move up or down. For it to be profitable, an engulfing pattern must form at a swing high or low. Only then can it be used to formulate a trade idea.
Hence the name, this is the most prominent and significant feature of this pattern. The second candle has a small body, indicating that there could be some indecision in the market. This candle can be either bullish or bearish. The third candlestick acts as a confirmation that a reversal is in place, as the candle closes beyond the midpoint of the first candle. This type of triple candlestick pattern is considered as one of the most potent in-yo-face bullish signals, especially when it occurs after an extended downtrend and a short period of consolidation.
It either ends the downtrend or implies that the period of consolidation that followed the downtrend is over. Also, the second candlestick should close near its high, leaving a small or non-existent upper wick. For the Three White Soldiers pattern to be completed, the last candlestick should be at least the same size as the second candle and have a small or no shadow. For the Three Black Crows pattern to be completed, the last candlestick should be at least the same size as the second candle and have a small or no shadow.
This triple candlestick pattern indicates that the downtrend is possibly over and that a new uptrend has started. For a valid three inside up candlestick formation, look for these properties: The first candle should be found at the bottom of a downtrend and is characterized by a long bearish candlestick.
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