In the financial market, there are many ways and approaches to the assets analysis. It seems to me that everyone who came into this sphere left something after themselves in the form of trading strategies, author’s indicators or candle combination (patterns). Those instruments that demonstrated and continue to demonstrate a stable trading result, if applied in fix api trading, have already become classic methods for forecasting the future movement of a financial asset. One such tool is the pin bar pattern, which is also called the reversal bar.
Pin bar is a technical element of analysis based on market patterns (for more details on patterns, see http://www.investopedia.com/university/technical/techanalysis8.asp). Formation of a signal in the fix apiforexmarket is based on the market movement and the price bar closing.
How is Pin bar formed?
This technical pattern is nothing more than a reversal figure resembling a dodge, a falling star, a jerky figure and so on. A characteristic feature of this figure is the minimum distance between the opening and closing price (the bar’s body), but there must be a significant trade-off in a certain direction so that the candle’s shadow is “drown”. At the moment when the shadow of the candle is directed in one direction, and the candle is closed in the opposite direction – this pattern is formed. A key feature is also the ratio of shadow and body. In the standard sense, this ratio should be at least 1/4. But I would even say an acceptable ratio of 1/6. The higher this ratio, the stronger the trade signal.
What filters are used in the analysis?
n the standard application of this pattern in the fix apiforex market, only one candle is not enough. To do this, traders use a certain combination of price bars. Thus, the signal for purchases will be pin bar on the following conditions:
- Presence of two “bear” candles in the front of the pin bar pattern;
- Direct formation of the most reversible pin bar;
- Confirmation in the form of one bull candle.
For a selling signal, the reverse conditions apply:
- Presence of two “bullish” candles in front of the pin bar pattern;
- Direct formation of the reversible pin bar;
- Confirmation in the form of one “bear” candle.
Personally, I single out one more filter – angulation with the Alligator technical indicator. When quotes show an impulse decrease from the technical indicator values and form a pin bar, this is an additional filter for determining the pattern from Bill Williams’ trading strategy.
Where to set exit levels from a position?
Classically, it is necessary to open positions after closing the confirmatory candle (the third point in the filter system). I focus on placing pending orders above the high level of this candle. I also recommend setting a pending order on+2-3 points from the high level, taking into account the spread fix apiforex broker.
As for the stop loss and takeprofit levels, the first is set at the minimum or maximum value of the pin bar, because the break below the indicator will signal about a breakdown of the signal and the formation as a whole. With take profit, the situation is more complicated and here you cannot do without additional technical indicators or other elements of analysis to determine the exit point from the transaction. But I recommend selecting the tool that will demonstrate a SL-TP ratio at least 1 to 3. This will generate a positive mathematical expectation of the strategy.
As a result of the work of this pattern, an important role is played by the data accuracy. I have repeatedly met at different fix apiforex brokerage sites different closing and opening prices for pin bar, which means that there is a trade signal on one of them, while on the second one there is no signal. Therefore, I recommend you to apply pin bar only on high-quality brokerage sites or use trading via fix api(http://forexzzz.com/product/fixapi-zzz/).
I hope that this pattern will be an excellent element for you to find the beginning of the corrective movement or the trend as a whole. I will also note that this signal is perfectly combined with other elements of asset analysis.