Price action trading is based on the movements of the price. This article focuses on price action with the use of pinbars. You will get to know the way of using pinbar candles in determining the best entry and exit points.
Key Takeaways🔑
| →Price action trading focuses on the movement of prices using pinbar candles as a guide. |
| →Pinbars can help traders identify optimal entry and exit points based on their shadows. |
| →Price action trading is effective in ranging markets and can be practiced using a demo account before switching to a real account. |
Contents
Summary of the most relevant pinbar candles
Pinbars are basically the candles that are characterized by a small body and one long wick. On the other side, there can be a short wick or no wick at all. If you wish to refresh the knowledge about pinbars, please read How to identify and use pinbars at Olymp Trade.
In the picture below you have some pinbars displayed. The ones with a long shadow pointing down are called the bullish ones. The bearish pinbars’ shadow is pointing upward.
An important remark is that the tail of the pinbar works as a kind of support/resistance. It means that when the price reaches the edge of the candle’s tail, it shows a tendency to rebound.
So how to use this piece of information to your advantage? Let’s say you noticed a candle with a very small body and long shadow pointing up. You can conclude that the buyers are raising the prices. This is the time when the sellers come into action and make the prices go down. As a consequence, the closing price for this particular trading session is much closer to the opening price.
The appearance of the pinbar is a sign of some kind of battle going on. Buyers are driving the prices up, and the sellers are doing the opposite. The tail, which is formed when the sellers step in, acts like a weak support/resistance.
Best entry points based on observing pinbars
Your goal is to observe pinbar candles, especially their tales. The best moment to open a position is at the most extreme price that is at the very end of the wick.
Remember, this method is not equal to the candlesticks approach. The type, size, or color do not matter here. You should rather focus on finding pinbars and then the best entry price points.
In the following examples, I will use the EURUSD currency pair. Typically, I choose the morning hours, between 9 am and 12 am. It is just more convenient for me to determine the price movements then. However, you should try for yourself different hours and find those that suit you best.
I set the chart for 5-minute interval candles. And the money management strategy is to put the same amount on all transactions.
3 steps for using pinbars in price action trading on the Olymp Trade platform
Step 1. Set up the chart.
Once you are logged into the Olymp Trade account, you can choose the asset e.g. the EURUSD currency pair. Then set the Japanese candlesticks chart. The good thing about price action trading is that you do not need extra indicators. This way unnecessary chaos will not be introduced to your chart and it will be easy to notice the candles of your interest. Because this is what you need to do, observe the chart, and monitor the price movements. Keep in mind the candles’ interval should be fixed for 5 minutes, but the time one transaction should last is 1 minute.
Step 2. Observe pinbars and the future price reaction.
Look out for the pinbars with long shadows. They are just more valuable candles because the price tends to react with the levels the shadows reach as they were the support/resistance. Look at the exemplary picture. You can draw the support/resistance lines on the level of long shadow and trade accordingly in the future.
Step 3. Open the trade.
If you are trading price action with the pinbar candles you may trade only in a single position at the end of the wick of the preceding pinbar. Using 5-minute interval candles and opening a position just for one minute gives you time to analyze the prices more precisely.
Pros and Cons of Price Action Trading with Pinbars💡
- Pros:
- ✔️ No need for extra indicators, making the chart less cluttered and easier to read.
- ✔️ Effective in ranging markets, with potential for good entry and exit points.
- ✔️ Suitable for traders who prefer focusing on price movement rather than technical indicators.
- Cons:
- ❌ May not be as effective in strong trending markets, where support and resistance levels are constantly changing.
- ❌ Requires close monitoring of the charts and price movements, which can be time-consuming.
- ❌ Pinbar-based strategies may require experience and practice before achieving consistent success.
| Key Pinbar Characteristics | How to Utilize in Price Action Trading |
|---|---|
| Bullish Pinbar (long shadow pointing down) | Look for a potential price rebound and enter a long position at the end of the shadow. |
| Bearish Pinbar (long shadow pointing up) | Watch for a possible price drop and enter a short position at the end of the shadow. |
| Pinbar shadows acting as support/resistance | Observe price reactions at the end of the shadows and trade accordingly. |
Final words about using pinbars for price action trading
Your main focus should be on the price. So you observe the market following the price and not the candles’ color.
When the market is ranging it is a very good time to trade price action with pinbars. The trends are likely to generate higher lows and higher highs, which means that the support/resistance levels are in continuous change.
Place the same amount of money on every trade. And do not use one pinbar to specify the entry point more than once.
Now, when you have read about using pinbars for trade action trading, you should practice a little. Head over to your Olymp Trade demo account and trade without the risk of losing real money. Once you got hold of this method, shift to the real one. If you need some more guidance on trading read how to combine pinbars with Bollinger Bands. And do not forget to share how you find price action trading with pinbars in the comments section down below.
Enjoy your trading!
Q&A: Price Action Trading with Pinbars🔍
- Q: How do pinbars help in identifying optimal entry and exit points?
- A: Pinbars indicate a battle between buyers and sellers. By observing the long shadow of a pinbar, traders can identify potential price reversals and use the end of the shadow as an entry or exit point.
- Q: Can pinbars be used with other technical indicators?
- A: Yes, pinbars can be combined with other technical indicators, such as Bollinger Bands, to improve trading accuracy and provide additional confirmation.
- Q: How can I practice price action trading with pinbars before using real money?
- A: Many trading platforms, including Olymp Trade, offer demo accounts that allow you to practice trading strategies without risking real money. This is an excellent way to gain experience before switching to a real account.
- Q: Are pinbars effective in all market conditions?
- A: Pinbar-based strategies work best in ranging markets. In strong trending markets, support and resistance levels are constantly changing, making pinbar strategies less effective.
- Q: How can I increase my chances of success when trading price action with pinbars?
- A: It’s essential to practice and gain experience, use proper money management techniques, and continually monitor the charts to identify the best entry and exit points based on pinbar shadows.