This daily pin bar forex trading strategy is one you should know.
Pin Bars (or candlesticks) are one of the most popular candlesticks that many traders watch out for.
Why?
Well, that is because pin bars represent a really sudden and drastic change in traders sentiment. See what I mean with this chart below:
THE MAIN ISSUE WITH TRADING DAILY PIN BARS
Daily pin bars are usually very long candlesticks…the range (difference between the high and low price) is often in the hundreds of pips.
For example, if you want to trade a daily pin bar that has a range of 450 pips, you stop loss will be a little bit more than 450 pips.
That is the issue with trading daily pin bars: the large stop loss distance. See what I’m talking about below with this chart:
Now, if you had a $5000 trading account and if you trade 1 standard contract for the setup on the chart above, you are risking about $4500. Its a very large trading risk to take.
If you only trade 0.1 contact, your risk will be $45. If you trade 0.5 contacts, your risk will be $2250, still an unacceptable amount of trading risk.
So what is the solution if you still wan’t to trade 1 contract but keep your stop loss distance small so that you do not have a large trading exposure?
ENTER 50% FIB RETRACEMENT LEVEL
The best way to reduce your stop loss distance is to wait for price to retrace back to the 50% fibonacci level and take the trade.
Notice on the chart below, after the daily pin bar formed, the next candlestick that formed actually had price going up to the 50% fib level and then fall back down.
That’s what you are looking for…waiting for price to go back to the 50% fib level and then take your trade.
TRADING RULES
Currency Pair: Any
Timefames: daily chart
Forex Indicators: none
Sell Setup:
- When you see a pin bar form on the daily chart place a sell limit order on 50% fib level.
- Place you stop loss 2 pips above the high of the daily pin bar.
- take profit target: 3 times what you risked or the previous swing low level.
Buy Setup:
- When you see a pin bar form on the daily chart place a buy limit order on 50% fib level.
- Place you stop loss 2 pips below the low of the pin bar.
- take profit target: 3 times what you risked or the previous swing high level.
You are anticipating that that for the next 2-5 days, price may head up to the 50% fib level and activate your limit pending order. If within that time, you see that price has moved further away and no chance of going to the 50% fib level, you need to cancel your limit orders and wait for another time, another day.
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