Anyone who uses price action to trade the Forex market no doubt knows that it can offer plenty of lucrative setups. Today we’re going to break away from one of the most conventional methods and introduce you to a brand new setup.
The revamped system we’re going to cover today is a pin bar trading system. Now, I know you’re probably thinking that there’s nothing new about trading pin bars, so to dispel any doubt, let’s take a quick look at the traditional way that pin bars are typically traded.
Typical Pin Bar Trade Set up
More often than not, when trading a pin bar, traders will take a trade when price breaks through the nose of a pin bar. This is quite a conservative approach because we’ve waited for price to break the prior highs or lows.
Check out the image below:
As you can see, a bullish pin bar has formed. And as shown, traditionally a trader would place a buy stop or set an alert to enter a trade once the nose/high of the pin bar has been breached. And, as per usual the stop loss is placed below the tail/low.
This is by far the most common method of trading a pin bar setup, and I’m sure it’s something that you’re quite familiar with. That said, now we’re going introduce something that will give you food for thought as to what you consider a great entry for a pin bar setup.
The 50% Setup
This 50% entry setup is more aggressive than the traditional entry because we’re not waiting for the market to break above the highs of the pin bar, but instead, we’re waiting for it to retrace before we enter a trade.
Consider the image below:
As you can see, we’re now taking our trade when price retraces 50% of the pin bar, which means that we need to use a buy limit order instead of a buy stop.
So what’s so great about this setup?
What I really like about trading the 50% pullback is that unlike the conventional method, our risk reward is dramatically improved. We’re reducing the size of our stop loss, and giving ourselves a greater potential profit target.
As you know trading is all about favourable risk reward and probabilities. As you can likely imagine, not all pin bar setups will retrace to our 50% price level, so patience is required, however the improved R:R makes it all very worthwhile.
Patience, Patience, Patience!
As always in Forex trading, there will be good runs as well as bad runs. And as you no doubt are aware, trading is a marathon, not a sprint.
Taking only the most quality setups such as the 50% pin bar won’t offer you as many trade setups, but it will do wonders for your equity curve thanks to the attractive R:R offered.
As a trader, R:R is what defines our world. There’s no magic formula and there’s no holy grail but you can control your odds by controlling your risk.
Source: Vantage FX Blog