Previously, I wrote an article about Pin bar candlestick pattern and how to use it effectively. The article received a lot of questions from familiar readers of the blog. To help you better understand this special candlestick pattern, I will continue to share with you many interesting things about it.
If you are a follower of the Price Action strategy, you cannot ignore this Pin Bar series. Today I will answer the question: Why is Pin Bar extremely useful in Forex trading.
We have understood what Pin Bar looks like, what important message it carries. The focus of this post is on how to read the Pin Bar rather than trading a candlestick like the Pin Bar.
Supply and demand is king
Everything in Forex can be divided into 2 categories including supply and demand. They are what drive the market up or down and create price signals like Pin Bar pattern.
Supply is the quantity available at a given price. When the price increases, the supply increases because more traders are willing to sell at a certain price. This creates swing highs, making the market reach saturation point. That’s when traders increase selling causing prices to fall.
Demand is the quantity demanded at a given price. When prices fall, demand increases as more traders want to buy more. This creates swing lows in that asset. As more traders perceive value and buy more, supply decreases and price increases.
Apply supply and demand to Pin Bar trading
Bullish Pin Bar is formed when the market breaks below an important price level. Then it meets a large number of buy orders causing the price to go back above that price. When this happens, demand overwhelms supply, causing the price to rise.
The same goes for Bearish Pin Bar. When the price breaks above the important price level and immediately encounters a lot of sell orders. Supply overwhelms demand, causing the price to fall.
When either of the above occurs, it is a sign of market sentiment. With the bullish scenario, the market believes that when the price falls below a certain level, it is worth buying. Similarly, when the price rises above a certain level, it is worth selling. But who are these traders? Let’s find out why there is such a strong force that the price reverses in a flash.
The meaning of the Pin Bar candlestick
Most of the Pin Bars formed on the daily chart are the result of the actions of big organizations such as banks, investment funds, etc. This means that a large number of pending orders have been activated at one determined price. Most of the tails of Pin Bars are completed within a few trading hours. Only big ones like banks and funds can make this shift.
As retail traders, we need to follow the trend that forms after the Pin Bar. It will help us to see clearly where the bands and funds come in. This is the price level or price range that they think is below the true value.
This is even more amazing as it often happens around support and resistance levels, creating a great advantage for traders. We don’t need to grope for price zones that we think are support or resistance levels. Instead, we define them and let the big organizations show the way. In this way, we trade with what is happening, not with what we think.
In the next part, we will learn about one of the most effective strategies with Pin Bar in Forex trading. Let’s look forward to it.
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