The idea
A pin bar is a candle with a long wick on one side and a small body at the other end. A long lower wick means price fell during the candle but was pushed back up before the close; the hammer is the classic bullish version, the shooting star the bearish one.
On its own a pin bar means little. At a level that matters, such as support, a round number or the edge of a range, it shows that a push through the level was rejected. The strategy buys a break of the pin's high, with the stop beyond the wick.
Watch it play out
Step by step
The rules
Setup
- Price reaches a clear level (support for a bullish pin).
- A candle whose lower wick is at least twice its body, with the body in the top third of its range.
Entry
- Buy when a later candle closes above the pin bar's high.
Stop-loss
- Just under the pin bar's wick.
Target
- 2R, or the next resistance level.
Filters that help
- Pins in the direction of the higher-timeframe trend do better in most tests.
- Ignore pins in the middle of a range: location is the whole point.
Why it can work
The wick records a failed attempt: sellers drove price below the level and buyers overwhelmed them within the same candle. Traders who sold the break are now trapped below the close, and their stops sit above it.
Worked example
A stock falls to support at $124.50. A daily candle trades down to $123.20 but closes at $125.20, near its high of $125.35. The next day closes at $125.70, above the pin's high: buy, with the stop just under the wick at $123.05.
Risking $100, the $2.65 stop allows 37 shares. A 2R target sits at $131.00.
When it works, when it fails
Works best
At strong levels and in the direction of the bigger trend, on higher timeframes.
Struggles
In the middle of nowhere, and in strong trends running against it. A long wick also forms on news spikes that mean little.
Common mistakes
- Taking every long-wicked candle as a signal.
- Placing the stop at the pin's body instead of under the wick.
- Entering at the pin's close instead of waiting for the break of its high.
Variations
- Pin bar into a fair value gap
- The Smart Money version: a pin whose wick tags a gap or an order block.
What the evidence says
Evidence: Tested, mixedPublic tests disagree, or the edge has faded over time.
Candlestick patterns have been tested in academic studies with conflicting results. A study of large US stocks found that candlestick strategies, including single-candle reversals, did not add value after accounting for chance, while a later study of a different market reported some profitable patterns.
Hence mixed: whether a pattern helps depends on the market, the location (at a level or in the middle of nowhere) and the costs. Test it in the context you trade it.
Questions
- Should I trade pin bars against the trend?
- Pins that reject a level in the direction of the bigger trend tend to be more reliable. Counter-trend pins at major levels are traded too, usually with smaller size and quicker targets.
- What is the difference between a pin bar and a hammer?
- A hammer is a bullish pin bar after a decline. Pin bar is the broader name for any candle with a long rejection wick.
- How long should the wick be?
- A common rule is at least twice the body, with the body in the top (or bottom) third of the candle.
- Do pin bars work on low timeframes?
- They form constantly on low timeframes, most of them noise. They carry more meaning on four-hour and daily charts at important levels.