If as a trader you are keen, you shall notice that there are some bars or candles that are former with a longer tail or wick than the body. These are called pin bars or exhaustion candles. They can be bearish or bullish pin bars.
The bullish Pin Bar has a tail end that points down. It shows there is a price reversal that is about to happen. If you place an arrow at is tail facing the body, the arrow will point to the direction of the reversal; which in this case is upwards. This bullish candle actually shows that the market is rejecting any further lower prices or level of support. Therefore if such a candle is formed the prices are likely to rise.
The bearish pin bars have their tail end pointing upwards. If you place an arrow at is tail facing the body, the arrow will point to the direction of the reversal; which in this case is downwards. This bullish candle shows that the market is rejecting any further higher prices or level of resistance. As a trader if such a candle (exhaustion) forms then be prepared for prices to head downwards.
As a trader you should target the close of the pin bar and then open a trade in the direction that the pin bar points (this is by placing an arrow at the tail end pointing the body).
However after opening a position it is tricky to determine how far the predicted trend will go. When you enter a trade you are targeting profits as fast as possible. So you have to be sure of when to open a trade and when to close the trade.
Based on the above drawback, you need to combine pin bars with an indicator to get 100% result. The most convenient indicator to use is the fxi_pivot point indicator.
Fxi pivot point indicator
This indicator shows the daily lows and highs. It draws a line at the lowest prices of each day and this line is called the support level. It also draws another line at the highs of each day which are referred to as the resistances.
It also has another line in between the supports and resistances which indicates the market price level at which the day closes at.
Inserting the pivot point indicator
Download the indicator (croll down page to download FXI Pivots.ex4), save it in the indicators folder in the MQL4 folder. This is done by opening the MT4 platform and clicking at the file burton at the top left corner. Then clicking at open data folder.
After copying the indicator here close the mt4 platform and open it again.
Then click at insert, then custom and scroll down to locate the fxi_pivot point indicator and double click it. Then click ok on the pop up dialog box that appears.
You are now good to go!
Fig.2. fxi pivot point indicator on chart.
Using the fxi pivot point indicator with the pin bars
In this trading system you look for the pin bars that form at the resistances or supports. Then you open a trade at the close of the pin bar or exhaustion candle.
Be sure to place a stop loss at the end of the pin bar tail. This will ensure that you are safe in case the market misbehaves due to other factors like news or pressure from traders.
Then place your take profit at the nearest previous 3rd day support or resistance level in case of a bullish bar or resistance or support level in case of a bearish bar. You start with the one on which the pin bar has formed on.
This strategy will give you 95% and above returns.
Fig.3. Combining pin bars and fxi pivot point indicator.
From figure 3 above, as a trader you are to open a buy order at the closing of the second pin bar as shown then take your profit as shown. You realize that if you had opened the order at the close of the first pin bar and put your stop loss at the end of the tail you would still take your profits. The blue numbers shows the count to the third previous day support. Open demo account to test this indicator.