The pin bar method is a very popular binary options trading strategy among traders. One of the main reasons behind the popularity of this binary options trading strategy is the simplicity, which is very easy to understand even by the most novice traders.
What is a Pin Bar?
A pin bar is a price action (PA) bar that at first, goes in one direction, then suddenly go into the opposite direction, creating a long tail looking candlestick or bar pattern in the process. Regardless of the pin shape of the bar, the name “pin bar” actually derived from the fictional character Pinocchio. The pin bar resembles how Pinocchio’s nose use to grow when he was under stress from lying. Pin bars, in reality, do lie about their initial direction, then go the other way.
There are basically two types of pin bars. With a bullish pin bar, the price goes down, then comes up and with a bearish pin bar, the price goes up first, then closes near its opening price.
How to Apply the Pin Bar Method to Trade Binary Options?
Pin bars work best with a trend. Hence, it is strongly advised that binary options traders try to find an established trend and only then look for pin bars to trade. With this strategy, you would be using the pin bar as an entry trigger, which will in turn increase the probability of catching a good trade with minimum downside risk.
While many aggressive binary options traders choose to enter when the pin bar forms or when the daily bar closes, other experts highly recommend that you should wait for the price to break higher (for bullish) or lower (for bearish) of the pin bar.
While trading the pin bar against the trend may offer more rewards in traditional trading, trading with the trend will provide you with a higher win rate in binary options. This is because, with binary options trading, you are not only predicting the direction of the price, but the price needs to close “in-the-money” As well. Hence, in the beginning stage of trading binary options, you should focus on trading pin bars with the trend, as will increase your odds of winning.
Once you have identified a prevailing trend in the market, in order to properly apply the pin bar method, you need to wait for the price to break above the high of a bullish pin bar and low of a bearish pin bar. For example, in the USD/CAD daily chart above, we can easily identify five bullish pin bars in an uptrend. Here, the red lines above the pin bars should be your entry price.
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