Even though the pin bar can sometimes deliver a false signal, traders who read technical charts on a regular basis should have no problem in spotting them. For those not familiar with them, the pin bar has a small body and long wick. The wick length grows as the asset that is associated with it undergoes a price trend. Generally, the longer the wick, the higher the likelihood of a price reversal.
This pin bar strategy offers you the option to either “go long” or “go short” with your entry points. Your entry points can vary because you’ll have the option to wait for the subsequent candle to pull back to 50% Fibonacci. There is also the option to enter into a position right after the bar closes. Strategy application is simple, so this digital options strategy can be utilized by any trader who knows how to read pin bar/candle charts.
One of the drawbacks of this strategy is that you should not enter into a trade after each pin. For example, with a downward trend taking place following a small rally, if a bearish pin forms at a resistance level coupled with an oscillator showing hidden bearish divergence, you’ve got an excellent setup in your hands. However, with a counter-trend losses can come quickly and far too easily.
On the bright side, this strategy goes well with trending market conditions if you simply trade with the trend. It’s reliability rate is quite high when applied properly. This is because the pin bar gives you a clear picture of market sentiment. The first section of the candle shows the bullish sentiment forcing the asset price higher. Weakness allows the bearish sentiment to start pushing back, which suggests that closing should occur near the opening price for the day or possibly a bit lower.
This strategy can help you recognize a false line break or a false breakout. If you are looking at one-hour candles and the price is breaking at resistance within the first 30 minutes and the asset price is strongly pushing past resistance, wait for the candle to close. You do this because the candle is likely to drop some more, shifting into the next set of candles. When you’re patient, you avoid the false break and are given a clearer picture of market conditions.
This digital options strategy is highly preferred by a number of traders. Some traders have even reported a success rate in excess of 70%. Even so, it’s a good idea to be on the lookout for the confluence of various factors when applying this technique. Just continue to be aware of the other variables that can control market conditions and problems should be minimal.