In this post, I want to clarify some contentious issues between pin bar vs hammer candles.
Thanks to the lazy coverage on this topic, these two closely related candlestick patterns often get confused with one another. However, there are several nuances that often get overlooked. And I’m about to share them with you.
In particular, we will take a look at both of their definitions and unpack where their similarities and differences lie.
In addition, we will see how you can complement these candle patterns with other technical analysis tools and improve your success rate when trading them.
What is a Pin Bar Candle?
A pin bar, otherwise known as a Pinocchio bar, is a single candlestick that signals a potential reversal in the underlying price trend.
Visually, it has a long wick (shadow) at one end of the candle and a small body at the other end.
As you will see below, the orientation of the wick/body determines the likely direction of the price reversal.
In fact, there are 2 different pin bar variations: a bullish pin bar and a bearish pin bar.
Bullish Pin Bar
A bullish pin bar appears towards the bottom of a downtrend and has a long lower wick with a small upper body.
This means that the opening and closing prices of the candle are similar and appear towards the top of the candle. Note, it doesn’t matter whether the close price is above or below the open price; as long as they are close to one another and skewed towards the top of the candle.
There is usually a small upper shadow (wick) above this body, however the long tail below the body outweighs this significantly. This lower shadow is usually at least two times the length of the body.
Let’s think about what this means in terms of price action throughout the day:
- After opening, prices may or may not rise slightly, forming the highs of the candle. However, if they do, it doesn’t last long.
- At some point, sellers overwhelm buyers and drive prices down far below the open of the day, forming the lows of the candle. This selling pressure resembles the lower wick.
- Eventually, buyers return and send prices back up towards (and in many cases above) the open of the day, before closing near the highs of the candle.
The fact that buyers reject such strong selling pressure and finish the day in the driving seat is taken as a bullish signal.
As such, it usually precedes a bullish reversal of the previous downtrend. The morning doji star is another bullish reversal pattern you might be interested in learning about.
Bearish Pin Bar
Unsurprisingly, a bearish pin bar pattern is the mirror image of this.
Instead of appearing towards the bottom of a downtrend, it appears towards the top of an uptrend. And instead of having a long lower shadow with a small upper body, it has a long upper shadow with a small lower body. Again, this upper shadow should be at least two times the length of the body.
Let’s examine what a typical trading session looks like and interpret what this means:
- After opening, prices may or may not fall slightly, forming the lows of the candle. However, if they do, it doesn’t last long.
- At some point, buyers overwhelm sellers and drive prices up far above the open of the day, forming the highs of the candle. This buying pressure resembles the upper wick/shadow.
- Eventually, sellers return and send prices back down towards (and in many cases below) the open of the day, before closing near the lows of the candle.
The strong rejection of initial buying power by sellers implies that they are in control of the near-term trend at that point.
As such, this candle is usually seen as a bearish reversal pattern in the current uptrend. The evening star pattern is another bearish reversal pattern you should check out.
What is a Hammer Candle?
OK, what about a hammer candlestick pattern?
A hammer candle has a long lower shadow with a small upper body, resembling the shape of a hammer.
The long lower wick represents a selling climax in a downtrend, and the upper body indicates that buyers were able to push prices back up despite strong selling pressure.
This is an overall positive signal that usually precedes a bullish reversal in prices.
So, if you spot a hammer, it’s time to consider going long or closing out your short positions.
Pin Bar vs Hammer
If the description of a hammer candle sounds familiar, it should do!
Those paying attention will have noticed that a hammer candle is exactly the same thing as a bullish pin bar.
In fact, a hammer pattern is an old-school term for a pin bar. So don’t be surprised if you see these terms used interchangeably.
However, context is important.
Remember, a pin bar can be either bullish or bearish depending on where it appears in a trend and the orientation of the body/wick (upper/lower).
In contrast, a hammer candlestick pattern is strictly bullish.
So, while a pin bar is a catch-all/umbrella term for any candle with a long wick and small body at opposing ends, a hammer candlestick represents just one of these variations.
In other words, hammer candlestick patterns are just one type of pin bar.
This hanging man vs hammer article clears up another often misconstrued candlestick pattern with the hammer.
How to Trade a Pin Bar Candle
Now on to the all important issue of trading pin bars.
First, it should go without saying that you should never trade any technical indicator in isolation. They are too unreliable to build a profitable trading strategy.
With that said, there are ways to increase the likelihood of avoiding “false signals”. Let me outline some of these concepts for both bullish and bearish pin bars below.
Later in this section, I will show you how to apply these ideas to some real-world examples. I obviously have the benefit of hindsight here, so I’m not claiming that I definitely would have traded this way. I am purely illustrating the line of thinking involved, so that you have a framework to apply in your own trading.
Trading a Bullish Pin Bar/Hammer
Here is what an ideal entry and exit setup might look like for a bullish hammer candle:
Entry
- Look to enter long positions at areas of support, like trendlines, moving averages, and Fibonacci retracements
- Confirm the signal with other bullish technical indicators like an oversold RSI, rising volume, and bullish MACD crossover
Exit
- First of all, you should set a stop loss at the low of the hammer candle to limit losses in case of a false signal
- Then, look to take profits (sell) at resistance levels or evidence of other bearish technical indicators, like an overbought RSI, or bearish MACD crossover
Bullish Pin Bar Trading Example
Let’s see what this looks like in action…
In the chart below, you will notice a hammer pattern occur at a 50% Fibonacci retracement, which is a commonly used support level. This is highlighted by the the green buy arrow. In this example, I’m using use MetaStock’s candlestick recognition to identify pin bars.
At the same time, you will notice that this hammer coincides with both a bullish MACD crossover (top panel), as well as increasing volume over the past few trading sessions (bottom panel).
All of these combined build a bullish trading picture, so you might think about taking a long position at the next candle.
I have highlighted one possible exit level by the circled “SELL” candle, as this coincides with a bearish MACD crossover and declining volume.
However, note this is just one potential exit strategy. You could have sold earlier or later based on different resistance levels and technical indicators. The key is to experiment with these yourself, find the ones you’re comfortable with, and constantly monitor price action for context. As you gain experience, you will become better at “reading the tea leaves”.
Also, it’s never a bad idea to take partial profits on the way up. You’re unlikely to ever pick the top perfectly.
Trading a Bearish Pin Bar
And here is what an ideal entry and exit setup might look like for a bearish pin bar:
Entry
- Look to enter short positions at areas of resistance, like trendlines, moving averages, and Fibonacci retracements
- Confirm the signal with other bearish technical indicators like an overbought RSI, declining volume, and bearish MACD crossover
Exit
- First of all, you should set a stop loss at the high of the pin bar to limit losses in case of a false signal
- Then, look to take profits (cover) at support levels or evidence of other bullish technical indicators, like an oversold RSI, or bullish MACD crossover
Bearish Pin Bar Trading Example
Ok, let’s put these theories into practice with a real-world example…
In this particular example, we have 2 different pin bars marked by the red sell arrows. As you can see, they both have long upper wicks and small lower bodies.
In both cases, they occur at or close to a 50-day moving average (red line), which prices have struggled to break above recently. Therefore, this moving average is clearly acting as a resistance level. Immediately, this adds strength to any bearish reversal trade we might want to take.
However, on closer inspection, we see that the first trade gets stopped-out at the next candle, as prices move above the high of the pin bar.
This isn’t the case for the second pin bar, however.
As you can see, it coincides perfectly with the 50-day moving average and fails to break above it. At this point, you can feel confident about taking a short position at the next candle.
Now, in terms of covering your short position and taking profits, I have highlighted 2 potential areas.
The first occurs at a horizontal support level, while the second occurs when prices are deeply oversold based on the RSI (bottom panel). Of course, this is obvious with 20/20 vision, but I hope you find the thought process useful nonetheless.
As mentioned earlier, you don’t have to close out 100% of your position at any level. You can take partial profits wherever you think bullish momentum might return. This is a strategy known as “scaling out”.
Pin Bar vs Hammer FAQs
Is a Pin Bar Bullish?
A pin bar can either be bullish or bearish depending on the structure of the candlestick and where it lies in a trend.
If it appears in a downtrend and has a long lower wick with a small upper body, then it is generally a bullish sign. This candle formation is also known as a hammer, due to the shape it resembles.
What’s the Difference Between a Bearish Pin Bar and Inverted Hammer?
While the bearish pin bar and inverted hammer look identical, there is a subtle difference that distinguishes them.
Whereas a bearish pin bar is bearish (duh!), the inverted hammer is actually a bullish reversal pattern.
How can you tell which is which? It all comes down to context.
A bearish pin bar is usually found at the top of an uptrend, which increases the likelihood of a subsequent bearish reversal. In contrast, you usually find an inverted hammer at the end of a downtrend, which increases the likelihood of a bullish reversal.
Note, a bearish pin bar is also known as a shooting star. For a further explanation of inverted hammers and shooting stars, read this shooting star vs inverted hammer comparison.
What’s the Difference Between Pin Bar and Doji?
A pin bar has opening and closing prices that are close(ish) to one another, but not identical. This forms a small body, which can either be bullish or bearish.
In contrast, a doji candle has opening and closing prices that are practically identical. This means that a doji has no body. Note, a double doji is when 2 doji candles appear in a row.
Is an Inverted Hammer a Pin Bar?
It depends how precise you want to be.
Recall, there are 2 types of pin bars: bullish and bearish.
Visually, an inverted hammer looks exactly like a bearish pin bar (long upper wick, small lower body). However, instead of being a bearish reversal indicator that occurs towards the end of an uptrend, it is actually a bullish reversal pattern that occurs towards the bottom of a downtrend.
Technically, this means it doesn’t fit either definition of a bearish or bullish pin bar outlined earlier.
However, I’m not that pedantic. Personally, I generalize any candle with a small body and long wick at opposing ends as a pin bar – regardless of subsequent price direction. If you want to split hairs though, you could call it an inverted pin bar (which many do!).