Marubozu is the Japanese name of candlestick formation used in technical analysis of stock which is traded throughout the session in one direction and closed with higher or lower price at the end of the day. A Marubozu candle expressed only a body without shadows or wicks from the top or bottom end.
The absence of shadow represents that the trading session opened with a high price and in the end closed with a low price.
Identification of the Marubozu candlestick pattern:
It is very easy to understand this type of candlestick pattern because it has a single solid body with no shadows. Typically, white or green candles on the stock chart show a bullish pattern, when it becomes red or black it is bearish.
In Bullish Marubozu, the open price is equal to the low price, and the close price is equal to the same as the high price. The identification for an effective spinning top will be:
- A large real solid body
- No shadow on both sides of the candle body
- The candle color will be a significant meaning
A Perfect Morubozu is rare in the actual market conditions. Therefore there is a very little difference sometimes, usually less than 0.01% of the candle range between the prices of open/close. When a Marubozu is identified then the high or low price is ignored.
What does the Marubozu pattern tell traders?
Marubozu candlestick pattern can be seen on the charts of all stock at all time frames. It depends on which pattern controlled the day either be bullish or bearish. They are analyzing technically of whole day’s progress of the stock that how it traded all day.
Stock trading is the big competition between buyers and sellers. Sometimes wins one side therefore Morubozu pattern formed.
How to trade when you see the Marubozu pattern?
The color of the pattern of the candlestick describes that either buyers or sellers have full control of the market. The trading style will vary because of the type of marubozu. Before starting trading, you have to wait for the pattern confirmation or candle.
Trading with Bullish Marubozu
If you see on the image, there is no shadow on the upper or lower side in a bullish marubozu represents that the low price is the same as the open price and the high price is also the same as the close price. Therefore when you have a look at a candle with open=low close=high, that indicated a bullish marubozu.
This type of candlestick indicates that there is more buying interest in the stock or the participants are interested to buy the stock at any cost during ongoing trading sessions. Therefore, the stock price closed near the high point of the session. If bullish marubozu is showing an uptrend, it means the trend is still in continuation. But when it shows in a downtrend, it means the trend going in the reverse direction. It shows the sentiment of the market has changed and the stock is now bullish.
When this kind of sharp change happens there would be a flow of bullish patterns that are getting over the next trading session. Hence at this time, a trader must look for buying opportunities after the happening of a bullish marubozu.
Trading with Bearish Marubozu
A bearish marubozu indicates that the high price is the same as the open price and the low price is equal to the close price. Hence, when you have a look at a candle with open=high and close=low, that is called a bearish marubozu.
It shows that sellers are dominant in the market. There is more pressure of selling on the stock that the members of the market want to sell their stock at any cost during the trading session. Therefore the price of the stock closed near the low point of the trading session. If the bearish candlestick is showing downward, it means the trend is still in continuation. But when it shows in an uptrend, it means the trend going in the reverse pattern. It shows the sentiment of the market has changed and the stock is now bearish.
When this kind of sharp change happens there would be a surge of bearishness that is getting over the next trading session. Hence at this time, a trader must look for selling opportunities after the happening of a bearish marubozu.
How to avoid false Marubozu signals and setting stop-loss?
In most cases, the stop loss for any trading taken on the basis of marubozu candlestick pattern must be low or high of the candle. Even though marubozu is a very strong pattern, so it is advised to avoid very small (less than .5% range) or very long candles (more than 5% range).
The reduced trading activities happen when you see a very small candle and therefore it may be a false signal. At that time a long candle represents more activity and in that situation, the stop-loss for the trading will be deep. In these situations, avoid trade when candles are either too long or too short.
Before trading, make the additional confirmations from the different patterns and by technical analysis.
Before trading check the following patterns of marubozu candlesticks,
- See the formation of bullish or bearish candlesticks
- In the case of bullish, take a long when the price goes up
- Put stop below candlesticks
- In case of bearish, take a short when the price goes down
- Put a stop above the candlesticks
You can see Morubozu candlesticks pattern on all chart time frames. Only one signal is not enough to start trading. You must see what the technical analysis is being shown as well as the different candlesticks patterns. You might trade at day time by using marubozu patterns, seeing as one side is in control of the day. You must take time to study the candlesticks and technical analysis to enhance your trading skills.