Pin bar and binary options is one of the variants of strategies related to the category of graphical models. Chart patterns often show a fairly accurate signal that is used to predict price. The essence of patterns is that the price is volatile and any pullback should be followed by reversal or correction. Technical indicators do not always accurately distinguish main trend direction and the retracement of at least a small lag. Candlestick formation of pin bar displays the future reversal of the underlying price movement, separating the main trend of the correction. When the confirmation signal of the oscillator can be confident to open a position. More about what a pin bar is, how to use it properly and what strategies exist, read on.
What is the pin bar
Pin-bar is a simple but reliable model for binary graphical analysis, providing a relatively accurate signals to open positions. Advantage — easy recognition on the chart. If figures such as “Pennant”, “flag”, “shoulders” not always easy to see immediately (and any delay is fraught with the late opening), the formation of a pin bar at the peak or at the bottom is tracked almost instantly.
The three distinctions of pronounced binary model of reversal pin-bar:
- small body of binary candle (short candle). This means that the price has found its equilibrium value and soon will unfold;
- a long shadow on one side. The length of the shadow should at least exceed the size of the candle body in half. Also shadow should be long relatively to previous candles;
- short shadow on the reverse side. And ideally its absence.
All three parameters must be the same at the same time. In the figure below it can be clearly seen.
If a trader will work exclusively on the formation of the pattern, then eventually deposit will be nulled. And the reason is not that the pin bar does not work correctly, but that there is a false binary patterns that should be distinguished. And that comes with experience.
Correct and false pin-bars
A reasonable question arises: if this model is so simple, then why it can also be unprofitable. A lot of answers:
- as with any technical indicator, binary pattern requires understanding of its work and causes. It is not enough to see a candlestick formation that meets all the characteristics of the pin bar. You need to understand the probability of a false signal, for what the fundamental analysis is performed. If the market is calm (flat or remission), the candlestick formation suggests correction and it is better not to open long-term binary options. If the pattern is formed ahead of news, you can use short-term tactics, but be prepared for the fact that there is another turn immediately following the announcement. A lot of nuances and to open the option only on the formed pattern is a big risk;
- the timeframe is wrong, not matching the expiry of binary option. Pin-bar shows the strength of the trend, but that doesn’t mean you have to rely on long period. The strength of the trend is determined by the nature of the previous movement (the long recession or growth) and levels of support and resistance. Short expiration is also irrelevant, as the market is volatile and retracing the pattern, the correction may appear in short section;
- difference of theory from practice. The real binary market doesn’t paint perfect patterns with the right shadows and candles.
The correct pin bar is formed at the peak level of support and resistance. Its shadow extends far beyond the previous price values. An example about formation — candle, fully meets requirements, but is formed within a common price channel. This situation is common in the flat and is graphically depicted in the figure below.
The second image shows that the price is steadily rising within the corridor, traced earlier. Formed candle with a high shadow was only a correction, then the trend has continued to grow to the resistance level.
Here is the second example of false pin-bar:
At a particular section the price went up, then a kind of analogue of the pin bar was drawn. Perfect patterns do not exist, so I selected the most obvious thing for the last time.
Here is the same section on a more extended schedule. As you can see, significant changes in prices did not happen. And the opening of the option would be unprofitable. Levels are not the reason, they are okay. The problem is that the price is in flat. Candle, that drew the pin bar is slightly below the previous one, although seemingly is a signal.
- Important: precise is the signal when the pin bar is situated just above the previous candle or has the opposite color.
False pin bars can also benefit, that shown in the image below:
Here you can see that there is a deliberate ascent of the trend with periodic setbacks. Candle, draw a shadow on a turn about, so as not to the levels of support and resistance. But in this case it confirms the strength of the trend.
Strategies using pin bars
Again I draw attention to the fact that this formation even at peak levels can not be an independent strategy. Redraw candles, price noise correction — all this will ultimately lead to loss of deposit. So you also should use other techniques to assess the accuracy of the signal.
1. Levels of support and resistance
At the moment of reaching of level of support or resistance price is most likely going to rebound. The formation of the pattern will confirm this assumption.
The disadvantage of this model of binary options that it is not always possible to draw the levels correctly. Someone does it by 2 points, some 3 and more. Someone draws the levels on the shadows, someone on the candles. Often there are mistakes with setting of the period to draw the lines. Due to such extensive variations of interpretation of the levels there are inaccuracies with the opening of the transaction, and with turbo options this is very critical.
2. Channel indicators
Example – Bollinger bands. Flexible channel indicator for binary options showing average data rates. The formation of the pin bar at the borders will mean the rebound from the border. Expiration is set at half of the amount of time required to achieve price of a binary option opposite the channel layer.
- Important! Channel tactics and levels of support and resistance are associated with the techniques of candlestick analysis. The working principle of pin-bar is the same with the trade on the candle with the rebound from the channel boundaries or levels. The question may arise about the utility of finding the pin bar, if you can focus on the candle. The answer is simple: the break of the price channel may be either the soon reversal or the formation of the main trend (opposite concepts). Forming a pin-bar on the border almost with 100% probability indicates a reversal.
The disadvantage of this binary options strategy is that you need to wait longer for the pattern formation. But the reliability of this conservative tactics is great.
3. Fibonacci Levels
The levels at which, it is possible to change the direction of the price with high probability. We’ve already told more here. They often are the formation of reversal patternsof technical analysis.
All three models work under different conditions of the market, which one is better is difficult to say. Model of binary options is designed strictly empirically.
Guidelines for working with pin bar of binary options:
- I do not recommend working on short time frames. Turbo options with this model are large commercial risks due to the possible redrawing of the candle, delayed quotes;
- expiration time — the candle of timeframe. If the timeframe is H1, set expiry 1 hour. This is the optimal timeframe for many currency pairs. It is possible even to increase it. If you prefer short timeframes, the expiration is better to set 2-3 candles.
- It is advisable not to take liquid, that is volatile pairs. Volatility means a dramatic change in market sentiment, so the pattern can not to play the trend completely. The pin bar is a signal to turn, and it rather displays it in the time of stable wave motion of price;
- entrance into the market is on the next candle after the pin bar. Basic candle should clearly show the formation of shadows and price limits;
- pin-bar can be combined with other graphic figures — “hammer”, “shoulders”, but in practice it is not easy to do. These figures can be detected at long time intervals, to see them, to recognize, to react — it only comes with experience.
For those who consider themselves professional, I recommend to use the expert advisors or indicators, which are based on pin-bars. Example — PinBar. It only needs to be customized for the volatility of a specific currency pair and to set the filters, smoothing the price noise. You can also order a custom-made script of the indicator according to the strategy.
And finally, several psychological aspects that are useful when working with graphical models. They repeat a few rules for working with technical indicators:
- no technical indicator or graphical model gives 100% result. Graphical schemes can work with result of 60% and 90%. The yield depends on the skill of a trader and the ability to apply related tools;
- if the pin bar didn’t work, that’s not a reason to give up. It makes sense to change the currency pair and timeframe, to take a breather. Do not rush to give up. Professionalism is earned in months, and not everyone becomes professional and not immediately. Whether you will be among their number, only you can decide;
- test the strategy. Despite the rare inputs, don’t be afraid to experiment and follow the performance of transactions. If on 100 test binary options profitability of options is more than 70%, – a good tactic. The relevance of transactions define yourself.
Listen to these rules and create your own binary options strategies with which you can earn every day. Don’t be afraid of disappointment and just go to the cherished goal!
Summary. Pin Bar in binary options is one of the easiest patterns of graphical analysis, which is recommended for beginning traders. The tool is used only in conjunction with additional indicators and tools — levels, oscillators, moving average. The professionalism of the use of the indicator appears only with practice. The frequency of signals is about 1-2 per day on one currency pair, because it is possible to diversify risks, working with several assets, including securities. If you have any questions or want to share your own experience with graphic figures, write in the comments!