How to Trade the Pin Bar – MACD Strategy

The pin bar – MACD strategy involves using candlesticks (or OHLC bars) and the MACD indicator to form a simple trading method. This system is best used in 4-hour charts – and if used correctly – should provide simple profits.

But before we go through the strategy, learning how candlesticks work is essential. Candlesticks contain data on open, high, low, and close values for each period. The thin lines on the top and bottom represent high/lows of a particular time period. The high is called the upper shadow, while the low is called the lower shadow. If a forex pair closes higher than the opening price, then a hollow candlestick is formed while a black one is formed if the close is lower than the opening price.

A pin bar is a candlestick whose upper shadow or lower shadow is far longer than the other one, and is often accompanied by a small real body. A bullish pin bar contains a long lower shadow, a small body and a small upper shadow, whereas a bearish pin bar contains a long upper shadow, a small body and a small lower shadow. A bearish pin bar is shown in the picture below.

Shadows – or wicks, as they are called – represent buying and selling pressure. A long upper wick would show that the bulls tried hard but the bears overcame in the end – thus, the bears won and the sentiment is likely to continue in the near future.

Once the concept of the pin bar is understood, the strategy should become easy for a trader. His trading should be in a 4 hour timeframe with only MACD as a technical indicator (default settings of 12,26,9 are recommended). This strategy works with all currencies – it’s that simple!

Once the trading setup is understood it’s time to go over the rules. These are as follows:

1.The 4 hour MACD should be below 0 (and likely to be bearish).

2.A bearish pin bar is spotted on the graph.

3.Set your stop loss 1 pip above the highest point of the pin bar,just so you don't wipe out your account.

4.Your trading objective should be to have a 1:2 risk-reward or even better. 

The rules for buy trades are the same, except the 4H MACD should be above 0, and the stop loss should be 1 pip below the lowest point of the wick.

The chart above shows two short entries, as pin bars were seen and MACD was below 0. The trade ended with a 116 pips profit, while the second ended at break even.