With its unique shape, the Pinocchio Bar has a good level of accuracy in detecting reversal. How do you use this pattern in trading?
Pinocchio Bar is one of the most popular candlestick patterns traders commonly use to analyze the market. This candlestick pattern can provide helpful information about potential reversal or direction changes.
Although it is classified as a simple candlestick pattern, Pinocchio Bar is quite effective in helping traders predict future market movements. There are two ways to use Pinocchio Bar to strengthen the trading analysis. First, by using Fibonacci Retracement, and second, by using RSI. How to use them?
What is Pinocchio Bar?
Pinocchio Bar, also known as Pin Bar, is one of the candlestick patterns that consists of one candlestick with a very long wick and a relatively short body. In this case, the very long wick resembles the shape of Pinocchio's nose.
Traders consider the Pinocchio Bar pattern to indicate uncertainty or doubt in the market about the direction of price movements. The longer the wick of the Pinocchio Bar, the stronger the indication of price rejection at a certain level, which means that the price is likely to experience a reversal.
In addition, the position of the wick on the Pinocchio Bar can also provide helpful information for traders. If the wick points upwards, this pattern indicates a potential reversal from a bullish trend to a bearish one. Conversely, if the long wick points downwards, it indicates a potential reversal from a bearish trend to a bullish one.
Characteristics of the Pinocchio Bar Pattern
The Pinocchio Bar has several distinct characteristics that differentiate it from other candlestick patterns. Some examples include:
- Long wick: The main characteristic of the Pinocchio Bar is the very long wick that can be much longer than the body of the candlestick itself. This wick shows the difference between the highest or lowest price and the opening or closing price. This very long wick indicates very strong buying or selling pressure in the market and is likely to be followed by a reversal.
- Short body: Besides the long wick, the Pinocchio Bar has a relatively short body. In this case, the short body indicates that the price opened and closed at similar levels.
- The candlestick color is not significant: The color on the Pinocchio Bar does not always have significant meaning as it does not determine the characteristics of this pattern. However, some traders may pay attention to the color of the Pinocchio Bar to help identify its reversal signals.
- Unequal length wick: Although one wick on the Pinocchio Bar tends to be very long, the wick on the other side of this pattern is not always the same length. A longer wick indicates stronger buying or selling pressure, while a shorter wick indicates less significant price differences.
Occurs after a fast movement. The Pinocchio Bar usually occurs after a fast and significant price movement. This movement can be a strong bullish or bearish trend or occur after the release of important news or high-impact events that affect the market.
Pinocchio Bar Trading Strategy
The Pinocchio Bar pattern is quite flexible as it can be used in various trading strategies. Here are some examples of using the Pinocchio Bar pattern for trading.
1. Pinocchio Bar with 50% Retracement
The first example of using the Pinocchio Bar pattern is combining it with Fibonacci Retracement. To get maximum results with this strategy, please follow the Buy and Sell rules below:
Sell Entry Scenario:
- A Pinocchio Bar appears at the end of an uptrend on the D1 (Daily) timeframe.
- Place a Fibonacci Retracement, and draw it from the top to the bottom of the Pinocchio Bar.
- Place a Sell Limit in the Fibonacci Retracement area of 50%.
- Place the stop loss a few pips above the daily Pinocchio Bar.
- Take profit ideally follows a Risk Reward Ratio of 1:3.
For a better understanding, please refer to the image below.
Buy Entry Scenario:
- There is a Pinocchio Bar pattern at the end of a downtrend on the D1 (daily) time frame.
- Place a Fibonacci Retracement from the top to the bottom of the Pinocchio Bar.
- Place a Buy Limit in the 50% Fibonacci Retracement area.
- Stop Loss can be placed a few pips below the daily Pinocchio Bar.
- Ideal take profit should follow a Risk Reward Ratio of 1:3.
Refer to the image below for more details.
2. Pinocchio Bar Strategy with RSI Indicator
The following technique combines the Pinocchio Bar with the RSI indicator to look for reversal signals when Overbought or Oversold occurs.
Sell Entry Scenario:
- Use a 4-hour (H4) or higher chart to minimize price noise.
- Pinocchio Bar appears at the end of an uptrend.
- Observe the Pinocchio Bar that is in the Overbought zone.
- Open a Sell position when the price crosses the RSI line of 70 from top to bottom.
- Stop loss can be placed above or at the end of the Pinocchio Bar.
- Take profit should be adjusted to each Risk Reward Ratio.
An example of the application of the Pinocchio Bar with the RSI Indicator is shown below.
Scenario Entry Buy
- Use a 4-hour (H4) chart or higher to minimize price noise.
- There is a Pinocchio Bar pattern at the end of a downtrend.
- Observe Pinocchio Bar patterns that are in the Oversold or oversold zone.
- Open a Buy position when the price crosses the RSI 30 line from below to above.
- Stop loss can be placed below or at the end of the Pinocchio Bar.
- Take profit according to each Risk Reward Ratio.
- To see more clearly, please see the image below.
Candlesticks such as Pinocchio is a great tools for mastering Price Action trading. But memorizing all of them is impossible. Is there any other way to master this?
5 Comments
May 24 2023
Do you know if long wicks, like the ones we see in the Pinocchio Bar pattern, can appear in other candlestick patterns? I find it fascinating how the Pinocchio Bar stands out with its distinct long wick, indicating significant buying or selling pressure and signaling a possible market reversal. But I'm wondering if this feature is unique to the Pinocchio Bar or if we can spot long wicks in other candlestick patterns as well. Are there any other candlestick patterns where a long wick is present, suggesting a similar surge in market momentum and hinting at potential trend reversals? It would be great to understand if long wicks have broader implications beyond the Pinocchio Bar and how traders can leverage this knowledge in their analysis.
Jun 8 2023
Hey there! Finally, there is an article that talk about pin bar specifically. But, as I know, candlestick patterns can be quite tricky to differentiate, especially when it comes to identifying a pin bar versus a hammer. They can look quite similar at first glance! So, I'm curious to know, what are the main characteristics that set these two patterns apart? And how does their placement within the overall price action context help us confirm whether it's a pin bar or a hammer? It would be great to hear your insights on this topic
Jun 9 2023
@Theo: Hey, I completely understand your confusion when it comes to distinguishing between a pin bar and a hammer candlestick pattern. They can indeed appear similar, but there are key characteristics that set them apart.
A pin bar is characterized by a long tail or shadow, which is at least two times the length of the candle's body. The tail should be sticking out and opposite to the direction of the prevailing trend. This indicates a potential reversal in the market.
On the other hand, a hammer has a small body located near the top of the candle, with a long lower tail or shadow. The tail should be at least twice the length of the body. The hammer typically forms after a downtrend and suggests a possible bullish reversal.
To confirm whether it's a pin bar or a hammer, it's crucial to consider their placement within the overall price action context. A pin bar found at key support or resistance levels, or within a trendline, can provide stronger confirmation of a reversal. Similarly, a hammer appearing near support levels or after a prolonged downtrend adds weight to its bullish reversal potential. (also read : What Makes Hammer Candlesticks So Special?)
Jun 15 2023
How can we adjust the risk-reward ratio to 1:2 when using the Pinocchio Bar pattern combined with Fibonacci Retracement? In the given example, the recommended risk-reward ratio is 1:3. However, I'm interested in modifying it to achieve a risk-reward ratio of 1:2. What changes can be made to the strategy in order to align with this desired ratio? It would be helpful to know how to adjust the take profit level while maintaining a 50% Fibonacci Retracement area and the stop loss placement. Any insights or suggestions on implementing this modified risk-reward ratio would be appreciated.
Jun 27 2023
@Rendo: Alright, let's talk about adjusting that risk-reward ratio to 1:2 when using the Pinocchio Bar pattern with Fibonacci Retracement. So, instead of aiming for that 1:3 ratio, we'll make some tweaks to get it to 1:2, which sounds good to you.
Here's what you can do: Set your take profit level at twice the distance of your stop loss. If your stop loss is, let's say, 50 pips away, then your take profit would be placed at 100 pips from your entry point. That way, you're aiming to make twice the amount you're risking, which gives you that 1:2 risk-reward ratio.
Now, don't forget to keep that 50% Fibonacci Retracement area intact. It's like your sweet spot for potential reversals and finding areas of support or resistance.
When it comes to the stop loss, stick to the original Pinocchio Bar pattern. Usually, you'll want to place it just beyond the extreme of the Pinocchio Bar's wick or nose. This way, if the market turns against your trade, you're protected from taking big hits.
But hey, keep in mind that changing the risk-reward ratio might have an impact on your win rate and overall profitability. It's wise to backtest the adjusted strategy and see how it performs before going live. And hey, while you're at it, consider adjusting other risk management aspects like position sizing and trade management to keep things in balance.
Hope that helps! Happy trading!