Powerful Price Action Signals: Pin Bars, Inside Bars, and Fakeys

Price action trading is a powerful approach that focuses on reading the story the market tells through pure price movements on a chart. It strips away complex indicators, allowing traders to make decisions based on the fundamental battle between buyers and sellers. For those new to the world of trading, understanding key price action signals can unlock valuable insights and provide potential trading opportunities.

In this guide, we'll demystify three popular and potent price action patterns: the Pin Bar, the Inside Bar, and the Fakey. These aren't magic bullets, but rather visual cues that, when understood within the right market context, can significantly enhance your trading analysis.

Why Focus on Price Action?

Before diving into the patterns, let's briefly touch upon the advantage of price action. Unlike lagging indicators that rely on past data, price action is current. It reflects the immediate sentiment and activity of market participants. By learning to read price action, you're essentially learning to read the footprints left by buyers and sellers, gaining a more direct understanding of supply and demand dynamics. This can lead to more timely and informed trading decisions.

Now, let's explore our powerful trio:

1. The Pin Bar: A Tale of Rejection

The Pin Bar (short for Pinocchio Bar, because its long "nose" or wick often lies) is a prominent reversal pattern. It signifies a sharp rejection of a particular price level, suggesting that the market attempted to move in one direction but was firmly pushed back.

How to Identify a Pin Bar:

A classic Pin Bar has a small "real body" (the difference between the open and close price) and a long "wick" or "shadow" extending significantly from one side of the body. The key is the long wick, which should be at least two-thirds of the total length of the bar. The small body is typically located towards the opposite end of the long wick.

• Bullish Pin Bar: Forms after a downtrend or at a support level. It has a long lower wick, indicating that sellers tried to push the price down, but buyers stepped in aggressively and closed the price near the open or even higher. This suggests potential upward movement.

• Bearish Pin Bar: Forms after an uptrend or at a resistance level. It has a long upper wick, indicating that buyers tried to push the price up, but sellers took control and closed the price near the open or lower. This suggests potential downward movement.

What Does a Pin Bar Signal?

A well-formed Pin Bar, especially when it occurs at a key support or resistance level, suggests a potential reversal of the current price trend. The long wick represents the failed attempt by the market to sustain prices beyond a certain point, indicating a shift in momentum.

Trading the Pin Bar:

Traders often look to enter a trade in the direction opposite to the long wick. For a bullish Pin Bar, an entry might be considered on a break above the Pin Bar's high. For a bearish Pin Bar, an entry might be considered on a break below the Pin Bar's low. Stop-loss orders are typically placed on the other side of the long wick to manage risk.

Bullish and Bearish Pin Bars

2. The Inside Bar: A Moment of Consolidation

The Inside Bar is a two-bar pattern that signals a period of consolidation or indecision in the market. It often appears after a strong price move, suggesting a temporary pause before the next potential move.

How to Identify an Inside Bar:

The Inside Bar consists of a "mother bar" (the larger preceding candle) and the "inside bar" (the current candle). The high of the inside bar must be lower than the high of the mother bar, and the low of the inside bar must be higher than the low of the mother bar. Essentially, the inside bar is completely contained within the range of the mother bar.

What Does an Inside Bar Signal?

An Inside Bar indicates that the market is contracting and potentially building energy for a breakout. It suggests a period of equilibrium between buyers and sellers, where neither side is able to push the price beyond the previous bar's range.

Trading the Inside Bar:

Inside Bars are typically traded as breakout patterns. Traders anticipate a move in the direction of the eventual breakout from the range established by the mother bar and the inside bar. Entry orders are often placed just above the high and below the low of the mother bar. A break above the mother bar's high suggests a potential bullish move, while a break below the mother bar's low suggests a potential bearish move.

Mother Bar, Inside Bar and potential breakout

3. The Fakey: The False Signal's True Story

The Fakey pattern is a powerful signal that often traps unsuspecting traders and can indicate a strong move in the opposite direction of the initial false breakout. It's essentially a false breakout from an Inside Bar pattern.

How to Identify a Fakey:

The Fakey pattern starts with an Inside Bar setup. However, instead of breaking out cleanly in one direction, the price briefly breaks out of the Inside Bar's range but then quickly reverses and closes back within the range of the mother bar (or sometimes even the inside bar itself). This false breakout is the key characteristic of the Fakey. Often, the false breakout candle itself can be a Pin Bar.

What Does a Fakey Signal?

A Fakey suggests that the initial breakout attempt was a "騙局" (piànjú - deception in Mandarin, often used colloquially in trading contexts) designed to trap traders entering in the direction of the false breakout. When the price snaps back, it indicates that the market is likely to move strongly in the opposite direction, as those who were trapped are forced to exit their positions, adding momentum to the real move.

Trading the Fakey:

The Fakey provides a high-conviction trading opportunity in the direction opposite to the false breakout. If the false breakout was upwards, the Fakey suggests a potential move lower. If the false breakout was downwards, the Fakey suggests a potential move higher. Entry is typically considered when the price moves back convincingly in the "true" direction, often breaking the other side of the Inside Bar or Mother Bar.

"Mother Bar," "False Breakout Candle," and "Potential Strong Move" are labeled, showing an upward trend.

While understanding these individual patterns is crucial, their power is amplified when viewed within the broader market context. Consider the following:

• Support and Resistance: Do these patterns form at key support or resistance levels? Patterns occurring at these significant price levels often carry more weight.

• Trend: Are these patterns forming in the direction of the prevailing trend (continuation signals) or against it (potential reversal signals)? Trading with the trend is often favored by beginners.

• Multiple Timeframes: Do you see similar price action stories unfolding on different timeframes? Confluence across timeframes can strengthen a signal.

Start Practicing

Mastering price action takes time and practice. Begin by identifying these patterns on historical charts across different markets and timeframes. Observe how the price behaves after these patterns form. Consider using a demo account to practice trading these signals without risking real capital.

By learning to recognize and interpret Pin Bars, Inside Bars, and Fakeys, you're equipping yourself with powerful tools to understand market sentiment and make more informed trading decisions. Remember, patience, discipline, and continuous learning are your greatest allies on your trading journey.

Disclaimer: Trading financial markets involves significant risk of loss and is not suitable for all investors. This article is for informational purposes only and should not be considered financial advice.