Marubozu candles are found on most assets’ candlestick charts and can be a part of or a start of a candlestick pattern. Marubozu is recognizable by its specific shape and can occur in both bullish and bearish trading periods; by itself, it is a single candle pattern, which many traders use to indicate another known pattern, a trend reversal, or the continuation of a trend.
A Marubozu pattern occurs when the open and the close are the high and low of the trading period or vice versa. In other words, a Marubozu candle is a real body with no shadow (or, sometimes, a small shadow). The candles, as they appear on a candlestick chart of any time denomination, are useful as indicators by themselves or in conjunction with other candles on the chart.
In the remainder of this article, we will explain the composition, implications, and uses of Marubozu candles in more detail.
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Table of Contents
Types of Marubozu Candlestick Patterns
As stated, a full Marubozu candle occurs on a candlestick chart when the market opens and closes at the extreme prices of the asset. The two pattern possibilities for this are:
Bullish or White Marubozu: Also known as a long white body. It occurs when an asset increases in price over a trading period, which happens when the bulls control the market.
- It indicates trend continuation at the end of an uptrend.
- It indicates trend reversal at the end of a downtrend.
Bearish or Black Marubozu: Also known as a long black body. It occurs when an asset decreases in price over a trading period, which happens when the bears control the market.
- It indicates trend continuation at the end of a downtrend.
- It indicates trend reversal at the end of an uptrend.
Other Variations of the Marubozu Pattern
A candle with one shadow (above or below), which is less than 50% of the length of the real body, can also be considered a Marubozu candle. The variations for a Marubozu pattern in this case are:
- Opening White Marubozu: A bullish candle with a wick
- Closing White Marubozu: A bullish candle with a shadow
- Opening Black Marubozu: A bearish candle with a shadow
- Closing Black Marubozu: A bearish candle with a wick
How to Identify Marubozu Pattern in Candlestick Trading?
When spotting a Marubozu pattern, a chartist always looks for a long, real body with a small or no shadow. It is never the case that a Marubozu will have both an upper and a lower shadow.
Furthermore, a Marubozu can occur in any trend, or lack thereof, and the trader must analyze each individual Marubozu in conjunction with other candles, to determine its implication.
- Opening Level: This is ideally the high or the low of the day. The candle’s body formed from the open can be white (green) if the bulls control the market, or black (red) if the bears control the market.
- (Optional) Upper Shadow: A small upper shadow, never more than half the length of the real body, occurs for one of two reasons:
- Sometime after the open, the bulls controlled the market, and the selling price increased, but by close, the price decreased again below the open. This creates a black Marubozu with a small wick.
- Before the close, the asset price was raised by the bulls, then the bears took the market, and the price dropped down to a close, nevertheless still higher than the open. This creates a white Marubozu with a small wick.
- Closing Level: This is ideally the high or the low of the day. In conjunction with the open price, it forms either a long white or a long black body.
- (Optional) Lower Shadow: As with the upper shadow, this can occur in both a bull and bear Marubozu.
- Before the close, the price falls to an even lower price, which the bulls then enter in on. This brings the price up a little; however, the asset still closes below the open. This creates a black Marubozu with a small shadow.
- After the open, a sell-off occurs, causing the price to fall. But then, the bulls control the market, and the asset price increases again to close above the open. This creates a white Marubozu with a small shadow.
How to Interpret & Trade with Marubozu Patterns?
As explained above, a Marubozu candle can be an indicator by itself. Still, often, it is seen during a clear trend in conjunction with other candlesticks, signifying trader mentality, and future price action.
Bullish Pattern: Belt Hold or Single White Marubozu
This occurs as a single white bar after a downtrend. It indicates the possible reversal of the trend. Often, a trend of at least three sticks closing lower than the previous day must be established before a pattern can be considered a belt hold.
This signals a shift from bearish to bullish control of the market and can be used as a buy signal.
- Trade Entry: Following the trading period with the Marubozu candlestick, buy if the price is above the Marubozu’s close. For more risky traders, initiate the trade after the close of the bullish Marubozu.
- Stop-Loss: Set the stop-loss below the low of the Marubozu or at the midpoint of the Marubozu.
- Take Profit: Set the take profit point after three consecutive bullish candles, or before the next reversal of the trend.
- Manage the Trade: The belt hold can be a false signal and occur with a fluctuation of sentiment. Then, it can be negated by a continuation of the prior trend. Protect against this by keeping on top of your assets and using a stop loss.
Bearish Pattern: Belt Hold or Single Black Marubozu
This is the opposite of the previous pattern. It indicates a shift in sentiment from bullish to bearish. A belt hold can easily be the beginning of another pattern called a matching low, which occurs when two closing black Marubozu patterns happen consecutively. This is also a trend reversing signal. Its opposite pattern is the matching high, which are two trading periods with close white candlesticks.
- Trade Entry: At an opening price below the close of the previous sessions for black Marubozu, short sell.
- Stop-Loss: As this could be a false signal, place a stop-loss at the high or the midpoint of the Marubozu.
- Take Profit: Set this to be anytime during the downtrend.
- Manage the Trade: Especially for day traders, do not wait to let go of your assets. In a strong trend, this reversal can be quick, and bullish sentiment may return.
Note: The Ladder Top/Bottom, the Kicker, and On Neckline are other patterns that include Marubozu.
How to Improve the Reliability of Marubozu Pattern in Candlestick Trading?
One of the challenges with candlestick trading is establishing a trend. To help mitigate this problem, traders use the Marubozu pattern in conjunction with a trend indicator, such as a moving average line. This can help clearly define an upward or downward trend and indicate a continuation or reversal.
To confirm trend reversal patterns, traders will often couple candlestick charts with Stochastic Oscillators. Stochastics %D generates buy or sell signals; when the chart shows a pre-buy or pre-sell signal occurring at the same time as a trend reversal Marubozu pattern, it is a good indication that the Marubozu is reliable.
Additionally, Marubozu occurs less often in very liquid markets, such as in foreign exchange. Thus, in such cases, they should be considered more strongly than in a relatively non-liquid market with less price fluctuation, such as an index fund.
Advantages and Limitations of Trading Marubozu Pattern
Even though there are numerous advantages of integrating the Marubozo pattern into your trading strategy, the pattern comes with its fair share of limitations. To effectively trade using this pattern, it is important to account for these limitations as well.
Hence, in the following sections, let us take a quick look at the primary advantages and limitations of trading the Marubozu pattern.
Advantages of Trading Marubozu Pattern
Listed below are the primary advantages of trading the Marubozu pattern –
- It is easy to spot and trade this pattern
- Trades can be initiated at different points for varying risk appetites using this pattern
Limitations of Trading Marubozu Pattern
Listed below are the primary limitations of trading the Marubozu pattern –
- To effectively trade using this pattern, there is a need for a prevalent trend
- Perfect Marubozu patterns are rare to find on the price chart of most securities
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Conclusion
Candlestick patterns are an excellent tool for assessing market psychology and price action. Marubozu candles, in particular, are useful indicators alone, but can be coupled with other candles on the chart, and/or in conjunction with other indicators for optimal results.
Furthermore, when the correct trend and pattern is spotted on the chart, Marubozu candle patterns are a reliable way to identify and set trade entry and exit. Because of this, Marubozu Candlesticks make an excellent choice for beginners looking to start trading using candlestick charts.
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