perfect pin bars

[MajorDutch]

I have been studying pin bars for some time now and have refined what I call a 'perfect pin'. Clearly the form of the pin is only one factor in deciding whether to trade.

the rules for the perfect pins are:

EDITED 8.11.2011 from discussion points.

1. body of pin must be 1/3rd or less than the entire length
2. tail must be minimal or non existent
3. body must me in top(or bottom) 1/3rd of bar
4. for bullish setup close must be above or equal to open (for bearish vice versa)
5. the open and close must be within the left 'eye' of previous bar

Dutch's additional optional rules

6. only take a pin where price breaks the top(or bottom) of the pin within the next bar otherwise wait for the next one (it wont be long)
7. only take a pin where it is at a clear swing high or low. i.e. it's nose is sticking way out.

If you only take these bars at swing highs/swing lows the reliability of these pins on say a 1:1R basis is quite astonishing even on lower t/f's. This is without adding in any further confluence such as S/R, TL's, Round numbers, Pivots, Fibs, MAs.

but warning patience is needed as you will have you will have to pass on many many 'pin bars' which don't fit the perfect pin bar rules.

 

[pboyles]

I have been studying pin bars for some time now and have refined what I call a 'perfect pin'. Clearly the form of the pin is only one factor in deciding whether to trade.

the rules for the perfect pins are:

1. body of pin must be 1/3rd or less than the entire length
2. nose must be minimal or non existent
3. body must me in top(or bottom) 1/3rd of bar

and here is the rule that knocks many bars out:

4. for bullish setup close must be above or equal to open (for bearish vice versa)

and here is the final crucial rule that knocks out many more:

5. the body of the pin bar must be 'within' the range of the body of the previous bar. note normally the close of the previous bar is equal to the open of the current bar unless price has gapped.

rule 5 is crucial as without this condition being met what we are actually seeing is price failing to close above the previous close for a bullish set up (bearish vice versa) and this is essentially a breakout.

If you only take these bars at swing highs/swing lows the reliability of these pins on say a 1:1R basis is quite astonishing even on lower t/f's. This is without adding in any further confluence such as S/R, TL's, Round numbers, Pivots, Fibs, MAs.

but warning patience is needed as you will have you will have to pass on many many 'pin bars' which don't fit the perfect pin bar rules.

Can you post a screenshot of a good one. I have stopped using them at swing high/low and now only take them with the trend.

 

[MajorDutch]

your read my mind here is a chart of the 5m cable today, I don't trade small t/f's at present only 4H, Daily, Weekly so this is for illustration purposes only. you can see the reliability on the 5min.

 

[MajorDutch]

Also I only take trades where price breaks the pin bar on the next bar, if it doesn't break top of bar in the next bar I wait for the next perfect pin bar.

 

[MajorDutch]

Can you post a screenshot of a good one. I have stopped using them at swing high/low and now only take them with the trend.

I get you pb. you can take them at swing highs/lows with trend though. eg. see my gold no brainer trade, this is taken at a swing low however it is with long term trend.

 

[pboyles]

your read my mind here is a chart of the 5m cable today, I don't trade small t/f's at present only 4H, Daily, Weekly so this is for illustration purposes only. you can see the reliability on the 5min.

Try it with the trend on a 15 minute chart. For instance if you put a 50 and 100 MA on your chart to determine trend then look at what happens every time you have a PIN bouncing off the 50 MA once a trend has been established.

 

[MajorDutch]

here are some more examples.

Gold - 1st trade marked up pointed out by BBmac on his charts thread
CADMXN - i rejected this but it is a perfect pin, look what happened to price.
BRENT - I rejected this because it was back into chop, look what happened to price.

anyway point of this thread is to say to all Noobs out there:

If you start getting picky with the form of pin bars even on lower t/f's you can get some reliable entries. exits are a different ball game.

the rules of the perfect pin are kinda obvious but rule 5 really does weed out the wheat from the chaff, think about it, for a bullish set up if price cannot close above the previous bar close is that a high prob entry?

 

[MajorDutch]

Try it with the trend on a 15 minute chart. For instance if you put a 50 and 100 MA on your chart to determine trend then look at what happens every time you have a PIN bouncing off the 50 MA once a trend has been established.

hi PB, this is great vendor free trading discussion!

I normally have the 150 and 365 ma's up a.k.a. James16. I will certainly now eyeball a few 15min charts with the 50/100 MA's.

 

[pboyles]

here are some more examples.

Gold - 1st trade marked up pointed out by BBmac on his charts thread
CADMXN - i rejected this but it is a perfect pin, look what happened to price.
BRENT - I rejected this because it was back into chop, look what happened to price.

anyway point of this thread is to say to all Noobs out there:

If you start getting picky with the form of pin bars even on lower t/f's you can get some reliable entries. exits are a different ball game.

the rules of the perfect pin are kinda obvious but rule 5 really does weed out the wheat from the chaff, think about it, for a bullish set up if price cannot close above the previous bar close is that a high prob entry?

A few years ago when I had tradestation I did a lot of testing of various criteria for PIN bars, when I say a lot I mean months. None of it seemed to make any difference, if you take every PIN, regardless of your criteria you'll lose money, as soon as I gave up and applied even a small degree of discretion I could improve my hit rate greatly. Perhaps I just didnt try hard enough but I've seen others here saying the same thing.

Have you tested rule 5 to see how many good trades it would have kept you out of?

 

[Shakone]

Interesting. I'd class the one that you said "doesn't qualify just a breakout" as an excellent one, and the last one that you said qualifies as a very poor one. It's almost wholy contained in the previous 2 bars.

 

[pboyles]

Here's what I mean,

 

[pboyles]

Or this one, downtrend, slight pullback, PIN, down it goes. Just an example, I dont trade FX.

 

[pboyles]

Interesting. I'd class the one that you said "doesn't qualify just a breakout" as an excellent one, and the last one that you said qualifies as a very poor one. It's almost wholy contained in the previous 2 bars.

Yes there now seem to be several definitions of a PIN bar, like everything else in trading I suppose, there even 3 or 4 different ways to calculate pivots now.

 

[neil]

Dutch -I hope you don't mind me inserting this link to Pin Bar trading.

Albeit other things are alluded to ( engulfing bars etc) there is a lot of discussion on Pin Bars and how to be "picky" with your trades (It's a lot of info to scan through, but worth it imho)>

james16 Chart Thread @ Forex Factory

 

[MajorDutch]

Interesting. I'd class the one that you said "doesn't qualify just a breakout" as an excellent one, and the last one that you said qualifies as a very poor one. It's almost wholy contained in the previous 2 bars.

yeah I def would not take that bar I said 'doesnt qualify just a breakout', the prob is many of the bars work out, so I just tried to put down some systematic rules to get me on the straight and narrow, I then use discretion for all the other factors. The last bar I agree doesn't look right, it is at a swing low but is not 'sticking out enough'. open up a cable chart though and you will see it went on to make a good move.

 

[neil]

look at the post by "Jotty" and click on the PDF's for a couple of articles on Pin Bars.

trading pin bar @ Forex Factory

Hope this helps.

 

[MajorDutch]

A few years ago when I had tradestation I did a lot of testing of various criteria for PIN bars, when I say a lot I mean months. None of it seemed to make any difference, if you take every PIN, regardless of your criteria you'll lose money, as soon as I gave up and applied even a small degree of discretion I could improve my hit rate greatly. Perhaps I just didnt try hard enough but I've seen others here saying the same thing.

Have you tested rule 5 to see how many good trades it would have kept you out of?

I havn't, I have only noted the high prob of bars that fit rule #5

 

[neil]

your read my mind here is a chart of the 5m cable today, I don't trade small t/f's at present only 4H, Daily, Weekly so this is for illustration purposes only. you can see the reliability on the 5min.

Look at traffic to left of Pins etc and check free space for movement. Here is a free vid. from J16 site ....click on Mbq11... "Traffic vSpace"..the basics

Traders Links at The James 16 Group

 

[pboyles]

I havn't, I have only noted the high prob of bars that fit rule #5

You might be surprised, you'll have more trades that's for sure.

 

[MajorDutch]

look at the post by "Jotty" and click on the PDF's for a couple of articles on Pin Bars.

trading pin bar @ Forex Factory

Hope this helps.

good stuff Neil. one of those pdf's says both the open and close must be within the left eye. This is similar to my rule 5.