Pin bar or candlestick hammer is a type of reversal candlestick pattern that appears when the price opens and closes approximately in the same area.
Hammer candle is characterized by its tail that is triple the size of the body and a small body as compared to the tail.
The hammer and hanging man are identical in shape but differ in their indications, This difference is due the previous price movement.
- There are 2 types of pin bar: The bullish pin bar and the bearish pin bar
What Is A Bearish Pin Bar?
The inverted hammer represents a potential reversal in an uptrend, it indicates that buyers have lost their strength.
The bearish pin bar appears when buyers are pushing the price higher, whereas prices rise during the speculative period but this rise is rejected by the sellers.
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The Bearish Pin Par Candlestick Is Made Up Of :
- small body (any color)
- long upper shadow which indicates that sellers are pushing the market downward
- little or no lower wick (Shadow)
Look at the above figure, as you see the market is in a bullish trend, the formation of a bearish pin bar was a declining reversal pattern.
Buyers are trying to push the market upward, but the sellers reject it. (Seller power is greater than buyer power).
How Do You Know If Inverted Hammer Is Valid?
If the inverted hammer appears at the end of a bullish trend, followed by a long candlestick signals a selling power and closed lower than the pin bar, then it’s considered a strong signal for the end of the bullish trend.
Note: The longer the wick of the inverted hammer, the more credible and effective the inverted hammer is. The color of the candlestick doesn’t matter
Trading Bearish Pin Bar In The Trend
- After drawing the direction line on the chart, and you found that it’s a downward direction, you will seek for selling chances only.
- Support & resistance levels: after the price penetrates the support level, it becomes resistance level and tests, before resuming its downward movement,
- The inverted hammer rejects the resistance level.
Trading Bearish Pin Bar In Sideways Channel
When the market swings and moves sideways, the resistance area is formed at the top and support area at the bottom, here we can seek for the inverted hammer when the price touches the upper boundary of the sideways channel or the resistance level.