This trading strategy is a great strategy to use because it is profitable. However, if price has made a nice downmove and a pin bar forms at the low of the move, with a big wick to the downside, then the body should close green. Which of the methods you decide to use all depend on how comfortable you are with Pin Bars after practice and what other strategy components you are using to build your trading approach.
A true Pin Bar signals a trend reversal - or at least a very strong retracement. Whichever entry strategy you choose, typically you would place your stop loss a few pips above/below the pin bar (typically referred to as the technical stop loss”). If you want to learn about all the subtleties of pin bar trading, check out my price action trading course for more information.
There are many different possibilities for the entry, take profit and stop loss of a pinbar trade. In fact, just a Pin Bar followed by an inside Pin Bar or a Pin Bar followed by a regular inside bar are powerful signals in themselves. In a bullish pin bar reversal setup, the pin bar's tail points down because it shows rejection of lower prices or a level of support.
When viewed in isolation, the pin bar might have looked valid; however, when we consider the bigger picture where price was making lower highs previously, we can already see that the prevailing trend was down and thus question the validity of the bullish pin bar.
So there you have it. If you've been reading FRU articles carefully, you now have all the components for a viable trading strategy. Jack Maverick has over 20 years of experience in futures and forex trading, first as a broker Forex Pin Bar Trading and then as an independent trader.
The pin bar formation is a very valuable tool in your arsenal of Forex price action trading strategies. Another big mistake I see traders making with the pin bar reversal strategy, is putting their stop losses too close to their entry. Personally I trade mainly on daily time frame with very simple price action strategy I learnt from one of my mentors with over 25 years experience in market analysis.
This is due to market noise or random price fluctuations that simply mean nothing, and within this market noise there inevitably arises pin bar setups that may look good to the untrained eye, but in reality they are meaningless. B) The 8EMA crosses above the 21EMA, and both exponential moving averages turn upwards well before the bullish pinbar signal, indicating that the trend reversal from downtrend to uptrend is well underway.
One thing to consider that really helped with my trading, as well as backtesting, on daily charts was to make sure the time is what you want it to me. I could do a test on Forex Tester's default settings and get one result, and move it to where the close is in line with the New York close and get completely different looking bars.
I work with a different flavor of pin bar, which I call a Rejection candle - which provides more trading opportunities, and a more up to date, modernized view of the reversal pattern. Therefore, this strategy is probably not the Forex best stop-loss strategy, but it still deserves your attention.