Pin bars, hammers and shooting stars

A pin bar is a single candle with a small body and one long wick. When the long wick points down, it is called a hammer; when it points up, a shooting star. The names describe orientation and nothing more. The content, as with the engulfing candle, is the group of traders stuck in the wick.

The definition, with numbers

This course uses a measurable rule so that two people looking at the same candle agree:

• The long wick is at least 2× the body.
• The long wick is at least 60% of the total range.
• The short wick is no more than the body.

The third candle has a longer lower wick than upper wick and closes green, and many beginners would call it a hammer. It fails both thresholds. It is a normal candle with a slightly long tail.

   Hammer          Shooting star      Not a pin bar

     |                   |                  |
   +---+                 |                +---+
   +---+                 |                |   |
     |                   |                +---+
     |                   |                  |
     |                   |                  |
     |                   |
     |                 +---+
     |                 +---+
     |                   |

The colour of the tiny body is nearly irrelevant. A hammer with a slightly red body and a hammer with a slightly green body tell the same story. Do not let a 0.05 difference change your read.

Who got trapped in a hammer

Replay the hammer period. Price opened at 27.40 and fell to 26.10, a drop of 1.30 on a stock whose average range (assume) is around 0.90. Halfway through the period, sellers were well in profit and any buyer from the open was down more than a full average day.

Then price reversed and closed at 27.50, above the open. Now:

• Every short entered between 27.40 and 26.10 is underwater. The ones near the bottom of the wick, who sold into what looked like a breakdown, are hurting most.
• Every long who was stopped out on the way down (stops sitting just below the prior low, say 26.30) is now flat and watching price trade 1.20 above their exit. Some will buy back.
• Buyers who stepped in near 26.10 are sitting on a fast 1.40 profit and will defend their entry.

The wick is the record of a failed breakdown. The pool of trapped shorts is the entire wick, and their pain is measured from wherever they sold to the close. They will cover on dips into the wick, which is why price often finds buyers inside the wick of a hammer, roughly its midpoint (26.80 in the example) or higher.

The shooting star is the exact mirror: trapped buyers in the upper wick, who chased a breakout that failed, and who will sell into any rally back toward their entries.

Key idea: A pin bar's wick is a list of prices where one side committed and was reversed within the same period. The longer the wick relative to normal range, the more of them there are and the more it hurt.

Where a pin bar means something

The story has strength only if the wick pierced somewhere the trapped side had a reason to be:

• A hammer whose wick dips below a prior swing low and closes back above it: shorts sold a breakdown that failed. Strong.
• A shooting star whose wick pokes above a range high and closes back inside: buyers bought a breakout that failed. Strong.
• A hammer in the middle of nowhere, after two quiet days: the wick trapped a handful of intraday sellers. Weak.
• A hammer after ten straight down days, at no level: the wick trapped some late shorts, but the enormous pool of profitable shorts from the whole decline is still happy. Bounce possible; reversal unproven.

The pattern is a measurement of one period. Where that period sits in the larger structure (Modules 3 and 4) is what decides whether the trapped group is big enough to move price.

The entry and stop that follow

If you were to trade a hammer, the logic gives you the levels for free:

• Stop: below the wick's low (26.10). If price trades there, the shorts are no longer trapped and the story is false.
• Entry: on a break of the hammer's high (27.55), which confirms buyers followed through, or on a dip into the upper half of the wick, which is where trapped shorts are expected to cover.
• Risk: from 27.55 entry to 26.10 stop is 1.45. That is a wide stop; a wick that long forces you to size small (see the Risk Management course) or wait for the dip entry, where the stop distance is shorter.

Module 5 turns this into a full setup with targets.

Long-wick candles that are not pin bars

• A candle with long wicks both sides and a small body is not a pin bar; nobody won the period. Some call it a spinning top or long-legged doji. It is indecision.
• A candle with a long lower wick and a large bearish body that closes near the low is not a hammer; it is a bearish candle that bounced slightly. Close location tells you: it will be near 0, not near 1.

Check the three thresholds. If any fails, the candle is ordinary, whatever its silhouette suggests.

Try it: Scan 100 candles on any chart and count how many pass all three pin bar thresholds. Most traders find between two and eight. Now count how many they would have called pin bars by eye before measuring. The difference is how much your eye exaggerates.

Recap

• Pin bar: one long wick at least 2× the body and at least 60% of the range, with the other wick no longer than the body. Hammer points down, shooting star points up.
• The wick is the list of traders who committed in one direction and were reversed within the period.
• The pattern is strong when the wick pierced a level (a failed breakdown or breakout) and weak in open space.
• Stop beyond the wick, entry on a break of the body side or a dip into the wick.
• Body colour is nearly irrelevant; measured wick ratios are what count.