Trading Strategies Revealed – “Pin Bar” review

Trend reversal trading strategy “Pin Bar” is designed mainly for Forex and can be used on all currency pairs on any time frames

What is the “Pin Bar”

A pin bar pattern consists of one price bar, typically a candlestick price bar, which represents a sharp reversal and rejection of price. The pin bar reversal as it is sometimes called, is defined by a long tail, the tail is also referred to as a “shadow” or “wick”. The area between the open and close of the pin bar is called its “real body”, and pin bars generally have small real bodies in comparison to their long tails.

How to trade “Pin Bar”

A trader should place the Sell order when the Bearish Pin Bar formed and Buy order when Bullish Pin Bar formed.

Initial back-test

To run a back-test we have coded a complete Pin Bar trading strategy as a MetaTrader 4 Expert Advisor. During preliminary analysis we have identified that the best time frame for Pin Bar trading strategy is 1 hour (H1). We have run a back-test of Pin Bar trading strategy. For our test as a trade exit rule we have used a Trailing Stop of 30 pips which is launched after a trade has started and is modified each new 1 pip of profit. From our point of view, such approach allows to maximize profit and minimize drawdown.

We have run the test for 2009.01.01-2020.07.10 using Every Tick modelling on EURUSD-H1, using 1:7 leverage, without reinvestment, assuming spread equals 10 ticks. These are the main parameters of Pin Bar trading strategy performance at its non-optimized state:

ROI# of tradesWinning ratioMax. drawdown
-0.15%939133.28%96.34%

Trading data analysis

After running the initial test of a simple non-filtered strategy we perform a trading data analysis that allows to identify possible filters to use to make the strategy more profitable reducing the drawdown simultaneously.

The following charts may give some possible insights on which filters to apply (time sessions, day of week limitation, trend strength threshold, overbought/oversold conditions, volatility range) to turn this strategy profitable should you decide to use this strategy in your investment portfolio:

Optimization

Pin Bar can be used with other indicators to filter out losing trades and make entry signals more accurate. After analysing trading data we have found the following insights which have helped us to increase the profitability of Pin Bar trading strategy reducing it’s drawdown in 15 times:

Before using the Oscillator indicators filters we applied the average volume filter which helped to discard most of losing trades.

  • The majority of buy trades that were opened at a too low value of Stochastic and the majority of sell trades that were opened at a too high value of Stochastic were losing when trading “Pin Bar” trading strategy during 2009 – 2020. It is risky to take trades in overbought and oversold zones.
    (ROI increase 1.5% -> 290%%, Drawdown reduction 97% ->17%)
  • The majority of trades that were opened at a boundary state of RSI were losing when trading “Pin Bar” trading strategy during 2009 – 2020. It is preferred to take trades at a more stable market.
    (ROI increase 1.5% -> 100%%, Drawdown reduction 97% ->62%)
  • The majority of buy trades that were opened at a too low value of CCI and the majority of sell trades that were opened at a too high value of CCI were losing when trading “Pin Bar” trading strategy during 2009 – 2020.
    (ROI increase 1.5% -> 55%%, Drawdown reduction 97% ->76%)

Optimization results

We have analysed data received from a test of Pin Bar trading strategy during 2009 — 2020 years and applied some filters such as Stochastic, RSI and CCI. As a result, the profitability of the strategy has increased from -0.15% up to 45.48% and it’s drawdown has reduced from 96.34% to 7.76% using leverage 1:7.

Post-optimization back-test

Reducing the drawdown has allowed us to increase the leverage that can be used while trading this strategy up to 1:70, which in turn, has resulted in annualized ROI increase up to 453.31%!

Reducing the drawdown has also allowed us to use risk based lot calculation. Below you can see the back-test results using $10,000 initial balance and 10% risk per trade:

ROI# of tradesWinning ratioMax. drawdown
46931.10%282937.33%13.38%

Analyze your trading strategy!

If you have a trading strategy that you want to analyse, optimize and increase its profitability (or even turn it from losing into a profitable Forex trading strategy) – feel free to contact us! Our trading data analysis team will respond to you within 24 hours clarifying all the details needed.

Our company specializes on automated trading systems and trading indicators development for the most popular trading platforms, such as MetaTrader 4/5, NinjaTrader 7/8 and cTrader.

If you need your own automated trading software designed based on your individual requirements, make a request for a free consultation with our team of professional programmers and find out the cost and terms of your project development.

Disclaimer: Hypothetical or Simulated performance results have certain limitations, unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity.

Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown.

Past performance is not necessarily indicative of future results. The customer is responsible for using the product at his or her own risk and “Nordman Algorithms” is not responsible for any possible losses caused by use of the product, including but not limited to losses.