SMA Pin Bar Forex Trading Strategy


You can now download the SMA Pin Bar Forex Trading Strategy for free on AtoZ Markets indicators gallery.

The SMA Pin bar indicator is a built-in indicator on most MT4 platforms. However, even though this indicator is available for use to most traders, only a few traders make use of this indicator.

Much like the Bollinger Bands, Keltner Channels, and Donchian Channels, this indicator is a band-based trading indicator. However, due to the difference in how it computes for its midline and outer bands, it has characteristics that are quite different compared to the other band-based indicators.

The indicator’s midline is typically based on a Simple Moving Average (SMA). However, the MT4 allows for the indicator’s midline to be modified. The moving average could be simple, smoothed, exponential, or weighted. It could also be applied to the close, open, high, low, median, weighted, or other configuration. Its outer bands are also based on the same moving average configuration as the midline, however, it is shifted up and down based on a certain percentage of the midpoint.

Pinbars are defined by their long tail, also called as a “shadow” or “wick” on candlestick charts, together with a much smaller real body, in comparison. In fact, the longer the tail, the more reliable the formation is considered to be.

In trending markets, Pinbar signals can offer high-probability entry points, with a good risk-reward ratio. It represents reversal scenarios, showing that the bulls and bears are really fighting it out for the price to move upwards or downwards. So, to confirm a bullish Pinbar, it is essential that the pattern forms amidst a bearish trend. Similarly, a bullish trend is mandatory for a bearish Pinbar to be confirmed.

For a Pinbar signal that represents a reversal in the bullish trend, consider these steps:

  • Calculate the length of the entire Pinbar, right from the highest to the lowest point.
  • A short position can be considered when the price moves beyond the lowest point.
  • A stop-loss order can be placed on the highest point of the bearish Pinbar.
  • The Pinbar minimum can be estimated below two times the length of the entry point. It is here that you could put a take profit order.

Indicators:

  • Envelopes
  • MA method: exponential
  • Period: 5
  • Apply to: close
  • Deviation: 0.20%
  • Pinbar

Timeframe: 1-hour chart only

Currency Pair: any

Trading Session: Tokyo, London, New York

How to trade with SMA Pin Bar Forex Trading Strategy?

Combining these two concepts, the Envelopes indicator and a pin bar pattern allows us to take mean reversion trades on price extremes.

The Envelopes outer bands are considered extremes. Whenever price goes over these lines, the market would be considered overextended. Then, if the next candle closes as a pin bar with the wick touching the outer band, then we would consider the rejection of price as confirmed. This gives us the signal to take the mean reversion trade.

However, because this type of mean reversion strategy typically goes against the short-term trend, we will only be aiming for the mean, based on the Envelopes’ midline.

Buy (Long) Trade Setup

Entry

  • The price must touch or go below the lower band signifying that the market could be oversold
  • Wait for the Pinbar indicator to print an upward arrow signaling a bullish pin bar pattern
  • Enter a buy market order at the close of the pin bar pattern

Stop Loss

  • Place the stop loss immediately below the entry candle

Take Profit/Exit

  • Close the trade as soon as price touches the midline of the Envelopes indicator

Sell (Short) Trade Setup

Entry

  • The price must touch or go above the upper band signifying that the market could be overbought
  • Wait for the Pinbar indicator to print a downward arrow signaling a bearish pin bar pattern
  • Enter a sell market order at the close of the pin bar pattern

Stop Loss

  • Place the stop loss immediately above the entry candle

Take Profit/ Exit

  • Close the trade as soon as price touches the midline of the Envelopes indicator.

How to download and install an indicator?

In order to install the indicator on your MT4 platform, you need to follow these steps:

  1. Click on “Download Indicator” button located at the top right corner of the screen.
  2. Save the file to your computer.
  3. Extract and move the files into MT4>Indicator folder of the MetaTrader4 software file directory.
  4. Restart your Metatrader platform.
  5. Navigate to “Indicators.”
  6. And select “SMA Pin Bar Forex Trading Strategy” template to apply it on the chart.

Note: This indicator was developed by T. Morris. AtoZ Markets does not carry any copyrights over this trading tool.

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