A true pinbar setup in forex trading is a popular price action strategy used by traders to identify potential market reversals. It is a candlestick pattern that occurs when the price of an asset opens, trades lower, rallies to a high, and then closes near its opening price. The pattern resembles a pin with a long tail and a small body, hence the name pinbar.
In a true pinbar setup, the tail or shadow of the candlestick should be at least two times longer than the body. The longer the tail, the stronger the signal. The body of the candlestick should be small, preferably less than 20% of the entire candlestick. This indicates that there was indecision in the market, and neither buyers nor sellers were in control.
The true pinbar setup can be bullish or bearish, depending on the direction of the market. A bullish pinbar setup occurs when the tail is pointing downwards, and the body is at the top of the candlestick. This signifies that the market initially moved lower, but buyers stepped in and pushed the price back up. This could be an indication that the market is about to reverse from a downtrend to an uptrend.
On the other hand, a bearish pinbar setup occurs when the tail is pointing upwards, and the body is at the bottom of the candlestick. This signifies that the market initially moved higher, but sellers stepped in and pushed the price back down. This could be an indication that the market is about to reverse from an uptrend to a downtrend.
To identify a true pinbar setup, traders need to look for three characteristics: the length of the tail, the size of the body, and the location of the pinbar. The pinbar should be located at a significant support or resistance level, or at a trendline. This increases the probability of a market reversal.
Traders can use the true pinbar setup in conjunction with other technical indicators to confirm the validity of the signal. For example, traders can use the Relative Strength Index (RSI) or Moving Average Convergence Divergence (MACD) to confirm if the market is oversold or overbought, and if there is a divergence between the price and the indicator.
It is important to note that not all pinbars are true pinbars. Some pinbars may have a long tail but a large body, or a small tail but a small body. These are not considered valid signals and may result in false breakouts or whipsaws.
Traders need to be patient when using the true pinbar setup. It is not a frequent occurrence, and traders may need to wait for days or even weeks to find a valid signal. However, when a true pinbar setup occurs, it can be a powerful signal for traders to enter or exit a trade.
In conclusion, the true pinbar setup is a popular price action strategy used by forex traders to identify potential market reversals. It is a candlestick pattern that occurs when the price of an asset opens, trades lower, rallies to a high, and then closes near its opening price. The tail or shadow of the candlestick should be at least two times longer than the body, and the body should be small. Traders can use the true pinbar setup in conjunction with other technical indicators to confirm the validity of the signal. It is important to be patient when using the true pinbar setup, as it is not a frequent occurrence, but when it does occur, it can be a powerful signal for traders to enter or exit a trade.
