Your Best Looking Pin Bar Could Be Completely Useless
What the video puts on screen, and where each point comes from. Every chart in the video
is generated series shaped to show the mechanism being discussed, labelled illustrative
where it stands in for a sample, and every figure printed on screen is computed from the
series it sits on. Nothing on screen is presented as a measured result from a real market.
What a candlestick records
A candlestick records the open, high, low and close of one period. The body spans the open
and the close; the shadows (wicks) extend to the high and the low.
- Steve Nison, Japanese Candlestick Charting Techniques, 2nd ed., Prentice Hall Press,
2001, ch. 3 “Constructing the candlesticks”.
- CME Group, “Understanding Candlestick Charts”,
https://www.cmegroup.com/education/courses/technical-analysis/understanding-candlestick-charts.html
The pin bar
“Pin bar” is short for Pinocchio bar, the name Martin Pring gave a bar whose long shadow
“lies” about the direction price was heading, closing back near the opposite end of its
range. The video’s description of the shape, a long wick and a small body near the
opposite end, follows that definition.
- Martin J. Pring, Pring on Price Patterns, McGraw Hill, 2005, ch. 6 “Pinocchio bars”.
The wick twice the body definition
The video says a wick twice the body is a common testable definition rather than a
guarantee. The two to one lower shadow rule is the standard description of the hammer, the
single bar pattern the bullish pin bar is usually equated with.
- Investopedia, “Hammer Candlestick”: “the lower shadow should be at least twice the
length of the real body”, https://www.investopedia.com/terms/h/hammer.asp
- Nison, op. cit., ch. 4 “Reversal patterns”, hammer and hanging man.
Spreads and pricing during news
The video says a long wick printed during a news shock may reflect unstable pricing,
wider spreads and fast order flow. Bid ask spreads in FX widen and depth thins in the
minutes around scheduled macroeconomic announcements, and brokers disclose that spreads
widen around news.
- Torben G. Andersen, Tim Bollerslev, Francis X. Diebold and Clara Vega, “Micro Effects of
Macro Announcements: Real Time Price Discovery in Foreign Exchange”, American Economic
Review 93(1), 2003, pp. 38 to 62.
- IG, “Why do spreads widen?”, https://www.ig.com/uk/help-and-support/spread-betting-and-cfds/fees-and-charges/why-do-spreads-widen
Timeframes nest
Twelve five minute bars make one hourly bar, so the hourly candle’s open is the first five
minute open, its close is the last five minute close, and its high and low are the highest
high and lowest low of the twelve. The video’s five minute against hourly comparison is
built that way, from one series.
- Arithmetic; no external source.
Not checked
- The 108 to 100 to 109 example is a hypothetical the script uses to describe one period’s
path, not a quoted market.
- The forty point and eighty point distances are a hypothetical describing a poor reward to
risk structure, not a measured trade.
- The claim that no universal wick to body ratio makes a pin bar reliable is a statement
about the absence of a published standard; the video does not cite a study of ratios.
- The equity curves, the sample matrix and the outcome histogram in the testing chapter
are illustrative series and are labelled as such on screen; no backtest was run.