A pin bar is a candle with a small body and a long 'tail', located at key levels (support, resistance, trend line). A correct pin bar indicates a price reversal.
In the picture, there is a bullish pin bar, the tail points downwards and the candle is green. After such a pin bar at the support line, the price usually goes up. A long tail indicates that the price has bounced off the level - a sign of pressure from buyers.
A bullish pin bar should be located at a resistance line, the tail should point upwards (indicating that the price has bounced), and the color of the candle should be red. After such a signal, the price usually goes down.
For a pin bar to work, it must be 'good':
- the tail should be long, and the body small.
- it should be located at key levels. A pin bar somewhere in the midst of other candles, not at a peak - does not count as a pin bar.
- the tail should be pushing away: from resistance - points upwards, from support - points downwards.
- the color of the candle is an optional parameter, but the correct color adds strength to the pin bar.
Does the pin bar work?
A good (this is key) pin bar almost always works. Just remember to make sure that you are indeed looking at a pin bar, and for that, you need to wait for the next candle.