Introduction

The EUR/USD pair traded in a sideways trading range for much of the summer, but suddenly burst into life in August when the price broke out to the downside.

It eventually found support at 1.1300 and came back into the previous trading range, before heading higher to touch the 200-day exponential moving average, which would have been an obvious exit point for many traders who had opened long positions prior to this.

This key moving average then acted as resistance and the price broke below the trendline that indicated the upward trend in August and September, and has continued drifting lower ever since.

Importance of Pin Bars, Inside Bars, Trendlines and EMA (200)

The real point that I wanted to get across in this article is that if you combine some of the most trusted candlestick patterns with trendlines and key areas of support and resistance, you can get some very powerful trading signals.

That’s exactly what we had with this pair because if you look at the daily price chart of the EUR/USD pair above, you can see all of these things combined to form a powerful reversal signal, and a clear signal to go short.

First of all, the price hit the EMA (200), and if you look at the subsequent price action, you can see that the price struggled to close above this key level.

Secondly, you can see that there was a clear pin bar where the price opened below the EMA (200) and surged higher above 1.1800 during the day’s session, but lacked momentum and dropped back to around its opening price, which was another key signal.

Thirdly, in the few days after this pin bar had formed, the two daily candles traded within the range of the pin bar and both had small bodies, which again indicated a reluctance to take the price higher.

Finally, the price broke below the range of the pin bar (which would have been the perfect time to open a short position), and if you were late to the party, you would have seen that this pair closed below the trendline, which would have given you another good opportunity to open a short position.

The price is now back at around the 1.1500 level. So even if you had entered late, you could have banked up to 170 points so far, which is obviously an excellent return.

Closing Comments

The point is that pin bars, inside bars, key resistance levels and breaks of trendlines are all powerful reversal signals all by themselves, but when they all combine to give the same signal, you end up with a really high probability set-up that is much more likely to be successful.

So it is always worth scanning through the various forex pairs to look for these ultra-strong signals because although they don’t necessarily occur that often, they can be very profitable when they do.