Pin bar strategies are essential to any trader who wants to succeed in trading the Foreign Exchange market. If you have a basic idea of what pin bar trading strategies are then this is for you, if not go to https://sec.rakuten.com.au/ or do a little research on it.
However, before we delve into all the juicy details of pin bar exit and entry strategies, Risk reward ratio is a crucial subject that you need to know about. Covering pin bar exit and entry strategies won’t make much sense if you don’t have a clear understanding of what risk-reward ratio is. Additionally, a proper risk-reward ratio is essential if you want to become a successful Forex trader.
So, what is a risk to reward ratio?
In simple words, a Risk Reward Ratio is the amount of capital you risk to achieve the desired gain. Since it is a ratio, it is represented as follow: 1:2 where ‘1’ is the risk, and ‘2’ is the reward. For instance, using this example, you would be risking $50 to gain $100 potentially. Simple, right? Now, let’s move along to pin bar entry and exit strategies.
Entry strategies for pin bar trade
When trading in the forex market, there are two common ways in which you can enter a pin bar trade. Both of these strategies have merit, and they heavily depend on the trader as well as the market conditions.
Pin bar 50% retrace entry
The pin bar 50% retrace entry strategy allows you to have a much better entry thus significantly increasing the potential risk to reward ratio. Even though the 50% entry can provide better returns, it doesn’t mean that this strategy is not flawed. About half of the time and even less on some currency pairs, the market won’t retrace 50% of the pin bar. This leaves your buy or sells limit order unfilled. What this means is that in the event you find an exceptional pin bar set up then you decide to use this strategy, there is a chance that you may be left behind and your order may not get filled.
Break of pin bar nose entry
This strategy is a more popular and conservative way of entering a pin bar trade. It involves placing a stop order just beyond the pin bar’s nose. The distance at which you position the stop order is more of a personal preference, it also depends on the currency pair traded. However, the proper rule of thumb suggests between 5 to 10 pups because it will allow you some room in the event of a false break.
Exit strategies for pin bar trade
To be a successful trader, you need to have an exit plan before you enter a pin bar trade or any other trade for that matter. Therefore, the saying plan your trade and trade your plan couldn’t be any truer. These are two types of pin bar exit strategies:
- Exit for a profit
- Exit for a loss
It is no secret that most rookie traders gravitate on the idea making profits and the possibility of losing second. Remember to become a successful foreign exchange trader you need to play defense all the time even if it means putting the potential for loss first.
It is essential that you identify your exit plan for a loss first before identifying your profit target. Even though it might take some time adjusting to this way of thinking, this small change may make a huge difference in how you trade. This is because it will force you to think defensively thus make you a more disciplined and diligent trader in your trading career.
Succeeding in forex trading requires a lot of research and practice, and with two of the best entry and exit strategies for pin bar trading, you might be on your way to becoming a successful trader.