A pin bar, short for ‘Pinocchio Bar’, is a single candlestick setup that signals a potential reversal in the market. The reversal is predicated on the premise the price, like Pinocchio’s nose, is ‘lying’ or in other words, is about to go in the opposite direction.
A typical pin bar has a long tail (or ‘wick’) with a small body.
The tail of the pin bar shows the price has been pushed in one direction, but then pushed back the other way, suggesting a move in the opposite direction may be coming.
Here’s the interesting part:
The longer the tail, the stronger the potential reversal.
That’s because the long tail shows the banks entered more trades of higher or lower prices.
For example, a bullish pin bar has a long lower tail, indicating the banks have entered buy positions with the expectation that prices will go higher. Conversely, a bearish pin bar has a long upper tail, showing the banks have entered sell positions with the expectation prices will go down.
Remember: While the pin bar can be a powerful trading signal, it’s important to consider the overall market context and not to base your trading decision solely on one pin bar.