In the previous part, we talked and knew about the benefits of Pin Bar candlestick pattern. We don’t enter orders every time we see it. Because that will make it easier than ever to lose our precious money. So how to set up a trading strategy with Pin Bar to bring profit the most? Now, let’s find the answer together in this article.
Before going into the details, we need to know an important thing first. That is the Risk-Reward ratio if you trade Forex. If you are investing in Fixed Time Trade, that is considered capital management. That is a vital factor for you to be successful on the trading path. So you need to prepare yourself for a way to protect your capital.
Risk-Reward ratio in Forex trading
This is the ratio between the amount of capital that can be lost to achieve a certain level of profit. We often say a 1:2 ratio (1 is risk, 2 is profit). At that rate, you will risk $100 to make a profit of $200. The higher this ratio, the better. However, you should not expect too high.
The Risk-Reward ratio is very important in the trading process. Because it allows you to lose more than win but still make a profit. For example, your ratio is 1:2 ($100 risk and $200 reward). In 10 trades, you lose 6 ($600) and win 4 ($800). Overall, you still make a profit of $200.
Now let’s apply this ratio to the Pin Bar trading strategy.
Pin Bar candlestick pattern trading strategy
There are two popular ways to enter a position using the Pin Bar. Both depend on the trader’s feelings and market conditions.
Strategy 1: Open a trade when the price breaks the nose of the Pin Bar
We will start entering a trade in the same direction as soon as the price breaks the nose of the Pin Bar (falls below the nose). To be safe, you should wait for the price to break through the nose a short distance as shown below.
If you miss the opportunity to enter an order when the price breaks through the Pin Bar, you can place a pending order at the preset price. When the price returns to the test, the order will be filled with higher safety. Remember to place the stop loss before placing the order, it will be near the tail of the Pin Bar.
Strategy 2: Enter a trade when the price returns to 50% of the Pin Bar
This is the preferred strategy of many professional traders. Since it gives a better entry price, the risk-reward ratio is also better. If using strategy 1 with the ratio of 1:2, when using strategy 2, you can win more and lose less with the ratio of 1:3. If used well, this strategy will help your account grow extremely fast in a short time.
To use strategy 2, we simply need to use the Fibonacci tool on the Pin Bar candlestick from the tail to the nose (if it is a Bearish Pin Bar) or from the nose to the tail (if it is a Bullish Pin Bar). Once you get used to this method, you may not need to use Fibonacci to measure % anymore. However, you need to practice and get used to it first. Don’t skip the stage.
Although the second strategy may give better results, it is not perfect. In about 50% of cases (and possibly less depending on the currency pair), the market doesn’t retrace 50% of the Pin Bar. This makes your UP or DOWN limit orders unfilled.
It would be disappointed to wake up in the morning and find that the market is running a long way in the right direction but cannot execute that order because it has missed a few pips and not yet entered the entry point. But that’s what we accept to have a more attractive win rate, right?
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