Often times in trading the simplest tools are the most effective and the simplest strategies are the most profitable.
One of our favourite trading methods at LFX is using the Pin Bar. We love it so much we developed our own Pin Bar Indicator.
The Pin Bar Indicator is a fantastic tool which automatically highlights Pin Bars on your charts so you never miss one. The indicator is fully customisable and allows the trader to select certain parameters to highlight the only the really premium PinBars.
Using this Indicator alone proves to be extremely profitable but when coupled with our Psych indicator, the trader can gain entry to the markets on really premium setups.
The Psych indicator gives an idea of current market psychology, displayed in a neat visual aid directly on your charts.The reason the indicator works well is similar to the psychology of the order book; typically if Retail Traders see lots of candlesticks going up then they short and increase the trend up higher, and if they see lots of candlesticks going down then they buy and increase the trend lower (banks and flow typically does the opposite).
When we are able to find confluent signals as generated by both Pin Bar Detector and Psych Indicator we know we have a high probability setup.
Looking at this Daily chart of the AUDUSD we can see that the Pin Bar Detector highlights a number of Pin Bars. However, not all of these PinBars are in the best locations for trading.
However, once we apply the Psych Indicator to the chart we can really pick out the best Pin Bars to trade.
We can see that we get a large bullish pin bar at lows giving us our first bullish signal and then just one bar later we get a confluent bullish signal on the Psych Indicator confirming our bullish trade setup at which point we get long.
We are able to stay in this trade all the way up to highs and although we get counter signals on the Pin Bar Detector, none are confirmed by the Psych Indicator and so we can stay long until we get a bearish crossover on the Psych Indicator.
At the point we get the bearish crossover we can then exit our trade, in this instance, booking a fantastic 779 pips
You can see just how effective this combined approach is. Both indicators are incredibly useful by themselves but when you apply them together in your market analysis you can really start to generate high probability trading ideas.
We have only looked very briefly at the combined use of these indicators – stay tuned for more in due course. And don’t forget, our Forex Trading Course contains full and detailed trading strategies and plans involving both indicators.