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2020-07-10 • Updated
Information is not investment advice
A pin bar is a typical hammer candlestick. It has a body (hammer head) and a tail (hammer grip). Its color doesn’t matter – it’s composition does as it defines whether it comes as a bullish or a bearish signal.
If the body is in the upper part of the candlestick – it’s a bullish sign, and a precursor of an upward reversal if there was a downtrend.
If the body is in the lower part of the candlestick – it’s a bearish sign, and it often precedes a downward reversal if there was an uptrend.
There are three easy ways to enter the market with the help of the pin bar/hammer.
Market entry: you just open position at the current price at a level that falls inside of the candle body/hammer head.
Limit entry: you place a limit order at a level that would be approximately 50% of the candle’s tail/hammer grip.
Stop entry: you put a sell/buy stop order just below/above the tip of the candlestick.
The image below shows where the levels of each entry type have to be located.
Important: make sure the pin bar/hammer is completed before you enter the market.
An inside bar refers to a two-candlestick formation when the body and the shadow of one bar are entirely within the limits of another bar. See the image below: the second bar is completely “overshadowed” by the first one.
Ideally, you will find an inside bar either below the tactical support level (bearish case) or above the resistance level (bullish case). Both scenarios indicate that the inside bar formation confirms that the level is broken, so it makes sense to open position.
In an example below, you see that the trend was in a sluggish move slightly aimed downwards. But after the inside bar, it went straight downwards. In this scenario, you would open a sell order after the completion of the inside bar formation at any level within the first bar’s limits.
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