What is Marubozu Candlestick?

The Marubozu candlestick pattern is a single-candle formation which has a long body without any shadow. It indicates a high market pressure in either direction. ‘Marubozu’ in Japanese means ‘bald'. Here it refers to candles that don’t have a wick. The pattern shows that a stock's price did not cross the opening and closing range. It may help analyse the overall market sentiment. 

How to Identify the Marubozu Candlestick Pattern  

The single long candle that has very short or no wicks is the key feature that helps identify the Marubozu candlestick pattern. Both bullish and bearish Marubozu have the same formation. When open and low prices are equal, it forms a bullish Marubozu. When open and high prices are equal, the bearish Marubozu is formed. 

Types of Marubozu Candlestick Patterns  

The different types of Marubozu patterns include: 

1. Marubozu Full: In this pattern, the Marubozu candle is without a wick. This suggests that the closing and highest prices are the same, while the opening and lowest prices are equal.  
2. Marubozu Open: The candle has no shadow on the closing side, but there is a shadow on the opening side. For a bullish pattern, the price closes at the high, but the opening is not at the absolute low. For a bearish Marubozu close, the candle closes at the low, but the opening is not at the absolute high. 
3. Marubozu Close: The candle in this pattern doesn’t have an upper wick but has a very short lower wick. This means the candle has no shadow on the opening side, but there is a shadow on the closing side. 

Importance of Marubozu Candlestick Patterns?  

After understanding what is the meaning of a Marubozu candlestick pattern, and how to identify it, let’s find out why it is important.  

• A series of bullish Marubozu patterns indicate a strong uptrend. Traders may consider buying stocks to potentially gain from increasing prices. 
• A series of bearish Marubozu patterns indicate a strong downturn. Traders may employ strategies like short-selling or put options, but risk management is critical. 

How to Trade Marubozu Candlestick Pattern?  

The trading approach for bullish and bearish Marubozu differs. Here’s how to trade them. 

For Bullish Marubozu Pattern 

1. Trade Entry: The target price might be any of the previously established resistance levels or a price determined by the trader’s risk-reward ratio. 
2. Stop-loss: Place the stop-loss limit lower than the price of the Marubozu candlestick. 
3. Target Price: The target price might be a previously established resistance level or a price determined by the risk-reward ratio. 

For Bearish Marubozu Pattern 

1. Trade Entry: If traders see a bearish Marubozu candlestick pattern, they should enter a short trade at a price lower than the candle's bottom. 
2. Stop-loss Limit: Traders should place the stop-loss limit above the high of the pattern. 
3. Target Price: Traders can choose a reasonable support level as per their goal price or select an exit depending on their desired risk-reward ratio. 

How to Handle Risk with Marubozu Pattern? 

Here’s how to manage risk with the Marubozu pattern. 

• Set Stop-Loss Strategically: For a bullish Marubozu, place the stop-loss slightly below its low; for a bearish Marubozu, slightly above its high. This may potentially reduce the downside risk. 
• Combine with Support/Resistance: Check if the Marubozu forms near key levels. Trading against strong support or resistance increases risk. 
• Monitor Volume: A Marubozu with high volume may be reliable. But low-volume patterns can lead to false signals. 

Benefits of a Marubozu Candlestick  

The advantages of a Marubozu candlestick pattern are as follows. 

• Indicates a Strong Trend: The pattern shows periods of strong bullish and bearish market sentiments, allowing a relatively faster understanding of trends. 
• Provides Clear Signals: Marubozu candlestick doesn’t have wicks. So, determining opening and closing prices is relatively simple.  
• Simpler Identification on Chart: As the pattern is formed with only a single candlestick, it can be simpler to spot on trading charts. 
• Reliable: Marubozu pattern tends to show the trend direction and market strength clearly. So, it can be a reliable indicator if used with other indicators. 

Disclaimer: All investments are subject to market risks, economic conditions, regulatory changes, and other external factors. Returns are not guaranteed and may vary based on market performance and investment tenure. Investors should assess their risk tolerance and financial objectives, conduct their own research, and consult a qualified financial advisor before making any investment decisions. 

Conclusion 

The Marubozu candlestick pattern is one of the most clearly identifiable patterns. It may arise in a variety of financial markets and time periods. It shows an increase in market activity. Its long real body, which lacks wicks, indicates whether buyers or sellers dominated the trading session. Traders can find this indicator on a good share trading app that offers essential trading tools. Bullish and bearish Marubozu candles that close on their highs or lows suggest all price activity was in one direction. Traders can use consecutive candle openings to gain trading signals. A candle opening below a bullish Marubozu or above a bearish one indicates a reversal. However, keep in mind that combining this candlestick pattern with additional indicators can help to avoid false signals and increase the trading strategy's performance.