Pin bars in the bar chart world are essentially the equivalent of hammers and shooting stars in the candlestick chart world. These single-bar price action indicators can be exceptionally effective confirming or warning factors for potential market turns in the forex market. Used in conjunction with other trade decision factors, most notably support and resistance, they can give valuable hints of possible changes in a market’s directional bias.
Pin bars, hammers, and shooting stars represent price exhaustion, price failure, and price rejection; and thus, potential price reversal. The indication after one of these chart patterns forms is of price’s possible inability to continue in the prevailing direction, and therefore, a possible reversal of the prior directional bias.
The basic concept of a bullish pin bar, or a hammer candle, is a long protruding bar (candle wick or shadow) pointing down, with the period close very near the open (small candle body) at or near the top of the bar/candle. These patterns occur after bearish price runs, and signify that price attempted to continue the bearish run, but ended up closing near the high and therefore failing. The basic concept of a bearish pin bar, or a shooting star candle, is a long protruding bar (candle wick or shadow) pointing up, with the period close very near the open (small candle body) near the bottom of the bar/candle. These patterns occur after bullish price runs, and signify that price attempted to continue the bullish run, but ended up closing near the low and therefore failing.
Some examples are highlighted on the accompanying forex chart. Not only is the shape of the bars/candles important – the placement is also crucial. In order to be truly effective, they should follow well-defined directional runs and be confirmed by other technical factors – like support/resistance, Fibonacci levels, trendlines, or the like. Very common occurrences in the forex market, pin bars, hammers, and shooting stars all represent warnings of potential exhaustion and possible change in previous momentum, as well as a potential triumph of bulls over bears (for hammers), or bears over bulls (for shooting stars).