Pin bar is one of the favorite price patterns that a lot of technical day traders look for. One can find it standing out from rest of the crowd, and can be traded around support and resistance levels.
A lot of traders like to trade based on Price breaking out of a support/resistance level. They plan to capture the quick move and place buy or sell stop orders at support or resistance levels. As the orders get triggered, you get a momentary break of these levels. Pin bar trigger the orders of such breakout players and then trap them into a losing situation. As the Pin bar closes back below the resistance or above the support, the price makes a run towards the other direction.
Here is how it looks like.....
Assume you were Bullish on this chart of $AAPL given its price action. As a break out trader, one would like to get in above the resistance as price breaks out. That means you will be in a long trade as the market proves you right. Here is what happens next.
The price reversed after getting you in (or should I say trapping you in). Definitely this will make anyone who is trapped nervous. The Bearish Pin Bar creates selling pressure, and subsequently the price goes down.
The idea is simple that you need to look for failures off of resistance or support levels. Although Pin Bar setup works in various time frames, you have to consider it after evaluating the overall market condition. It is always good to combine such price action with other factors such as Trend line Resistance/Support, Selling or Buying Pressure, Multiple tops or bottoms etc.
Here are few rules or guidelines you can follow.
Candle stick opens below the Resistance level
Price moves above the Resistance level and remains above for most of the time
At the time of closing, the candle stick closes below the Resistance
Candle stick opens above the Support level
Price moves below the Support level and remains below for most of the time
At the time of closing, the candle stick closes above the Support zone