Trading with the Pinbar Detector Indicator For MT4
Table Of Contents:
- Trading with the Pinbar Detector Indicator For MT4
- What is a Candlestick?
- What is a Pinbar?
- Spotting Reversal Patterns with the Pinbar Detector Indicator For MT4
- How to Trade with the Pinbar Detector Indicator For MT4
For those familiar with Japanese candlesticks patterns, trading with the Pinbar Detector Indicator For MT4 should have no secrets whatsoever. Using the indicator allows traders to benefit from the advantages offered by the Japanese candlesticks patterns.
Before going into more detail regarding how to use the Pinbar Detector Indicator For MT4, we need to understand candlestick charts. They grew in popularity in the last decades and replaced the bar charts, becoming the most popular charts for the retail trader.
What is a Candlestick?
A candlestick shows the price action in a period. We can define it using the OHLC (Open High Low Close) provided by all MT4 platforms.
Any candlestick has a real body (i.e. the distance between the opening and closing prices) and possible shadows. An upper shadow appears when a new candlestick begins, the price advances above the opening price, but then reverses and closes below the opening price. The distance from the opening price until the high in the candlestick represents the upper shadow.
On the other hand, a lower shadow forms when a new candlestick starts, the price move lower way below the opening price, but before the close of the candlestick it reverses and closes much higher. The distance from the opening price until the low in the candlestick represents the lower shadow.
What is a Pinbar?
Using the definition from above, it is easy to define a pinbar. To start with, a pinbar is a reversal pattern. More precisely, a one-candlestick reversal pattern. This is one of the greatest advantages when using Japanese candlestick patterns – they take less time to form than the classic technical analysis patterns (e.g. head and shoulders, double top and bottom, triple top and bottom, rising and falling wedges, etc.).
A pinbar can be either bullish or bearish. When bullish, it forms at the end of a bearish trend. The Japanese called such a pinbar a “hammer”.
A bullish price pattern, a hammer has a very small real body but a very long lower shadow. It is said that the shadow must exceed the real body three times for the candlestick to be a hammer.
On the other hand, a pinbar forming at the end of a bullish trend is a reversal pattern. It has a very small real body too, but a long upper shadow this time. Called a “shooting star”, it is nothing but a bearish pinbar.
Spotting Reversal Patterns with the Pinbar Detector Indicator For MT4
This indicator is great because automatically identifies pinbars that may act as a reversal pattern (hammers or shooting stars). The rule of thumb goes that the higher the timeframe, the more powerful the implications are.
The Pinbar Detector Indicator For MT4 places smiley faces above or below the pinbar, indicating the place where the candlestick appears. You can easily change the color or the smiley faces to adapt to your MT4 background.
In the example below, this is the EURUSD daily chart. It shows the recent price action from the last months and the Pinbar Detector Indicator For MT4 identifies four pinbars marked with the grey circles.
How to Trade with the Pinbar Detector Indicator For MT4
It is worth keeping in mind that pinbars show a battle between bulls and bears. A meaningful pinbar is enough to reverse a trade, but the bulls or bears don’t give up that easy.
What it means is that the market almost always tries to break the pinbar highs or lows, reflecting the fight between bulls and bears. Because of that, strict money management rules are a must.
One of the basic rule when trading financial market is to always have a risk-reward ratio that increases the chances for the account to grow in time. You can’t have only winning trades, but the higher the risk-reward ratio for any given trade, the bigger the chances that the account survives on the long term and growing at the same time.
A typical risk-reward ratio for the currency market is anywhere between 1:2 and 1:2.5, meaning that for every pip risked, the trader stands to win two or two-and-a-half pips. However, when trading with the Pinbar Detector Indicator For MT4, we need to have bigger rr ratio than this.
The problem with the Pinbar Detector Indicator For MT4 is that it identifies ALL the candlesticks that respect the rules of a pinbar, regardless if they appear at the bottom of a bearish trend or top of a bullish one. In other words, often you’ll see pinbars right in the corrective phase of a trend.
The trader has two choices. One is to simply ignore such pinbars and to trade only the ones forming at meaningful tops and bottoms. The other option is to trade them all, but having very tight risk-management rules. Namely, always use a 1:3 risk-reward ratio and don’t risk more than 1% of the trading account on any given trade.
Think of the fact that the Pinbar Detector Indicator For MT4 offers plenty of signals on ALL currency pairs or other markets and on all timeframes. Using the two risk management conditions from above results in always having a trade open and significant chances to grow the account.
But how to achieve such impressive risk-reward ratios with the Pinbar Detector Indicator For MT4? Remember that they show a battle between bulls and bears. So, first wait for the Pinbar Detector Indicator For MT4 to show a signal. Next, wait for a 50% retracement to go long or short, depending on the signal. Finally, place a stop-loss at the top or bottom of the pinbar and target three-times the risk.
Not all trades will end up winners. But the system allows the account to grow in time. Some traders use trailing stops to make the most of any potential winning trade.
Here’s an example from the pinbars on the EURUSD daily chart. It offered a nice rr ratio, even exceeding the 1:3 discussed earlier.
Can you figure out the setups on the other three pinbars?