Saturday, October 4, 2008

Fibonacci number and pin bar reversal

The Pinocchio or Pin bar consists of three bars. The nose of Pinocchio is the middle bar and left bar to the nose is the left eye and right bar is the right eye. The logic behind the Pin bar set-up is that price tried to breakout the previous bar’s range but it failed and many traders who traded the breakout will forced to closed their position ,which will push the price even lower. As you can see in the GBP/USD 4hour chart ,we have a prevailing down trend and after the long down trend the pair tried to retrace to the 38.2% Fibonacci level. As the pair reached the key level, price action shows a lot of uncertainty at that time. After the long side ways movement, we had a failed breakout and this was the key to our set-up. We traded the pin bar with great success as usual.

Important points:

1.A false breakout(Opposite to the main trend).

2.Consolidation at 38.2%,50% or 61.8% level .

3.Consolidation at the strong support or resistance area.

4.50 and 200 moving average S/R zone.

5.Right bar is a inside bar(for better risk-reward).

6.21 Period weighted moving average resistance/support.

Text book Pin bar:

The body of the nose should be at least 66% above the high of the left eye.It is very important that the open/close of the nose is contained within the range of the left eye. The more layers of resistance the nose penetrates, the stronger and more valuable the Pin bar is. Fibonacci retracement, Pivot Points and Moving Average lines are used in conjunction with the Pin bar chart pattern. The longer the time frame, the more reliable the Pin bar is. This pattern identified on a bar chart or Japanese candlestick chart .

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