What is Marubozu Candlestick?

What is Marubozu Candlestick?

A Marubozo candlestick charting configuration signifies that the price of an asset did not move beyond the range of its opening and closing prices. It's a lack of shadow candlestick design. The term "close-cropped" in Japanese, which denotes a candle without a shadow, is where the name Marubozo originates. On a chart, the Marubozo is identified by the lack of upper or lower shadows, which indicates that the chart stays within the opening-day price range. When the day opens at the same price as the low and closes at the same price as the high, it is said to be an up day. A bull market is indicated by days when the stock has gained, while a bear market is shown by days when it has lost.

What is the Marubozu Candlestick Pattern? 

The Marubozu pattern is a long candle with little upper and lower shadows. A bullish marubozu candlestick has a long, green real body, which shows that the bulls controlled the entire day. The stock closed higher than it opened, and there were no higher or lower prices that created wicks. The bearish marubozu candlestick has a lengthy red body. The bears had control throughout the day and pushed the price down. It closed lower than it opened, and there were no highs or lows that created wicks.

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Table of Content

  1. What is the Marubozu Candlestick Pattern? 
  2. Example of Marubozu Candlestick Pattern
  3. How to Identify the Marubozu Candlestick Pattern
  4. What is the Importance of Marubozu Candlestick Patterns?
  5. What are the Benefits of a Marubozu Candlestick?
  6. What are the Different Types of Marubozu Candlestick Patterns?
  7. How to Trade Marubozu Candlestick Pattern?
  8. The Risk-Taker And Risk-Averse
  9. How to Handle Risk with Marubozu Pattern?

Example of Marubozu Candlestick Pattern

Assume you are analysing a company's daily price changes. A black candlestick appears on a particular trading day, suggesting a bearish market sentiment for the company. The candlestick's large black body with no higher or lower wicks indicates intense selling pressure throughout the trading session. This indicates that sellers controlled the market from the start to the close. 

Traders analysing this Marubozu pattern may expect additional price declines or the continuation of the established negative trend. It might be a sign to employ short-selling strategies or trade the stock carefully. This example shows how this pattern may give useful insights into anticipated market fluctuations and aid traders in making the right decisions.

How to Identify the Marubozu Candlestick Pattern

A marubozu is only one candlestick, making it easy to detect. It comes in a few colours. A complete marubozu is only a long candlestick without an upper or lower shadow. It includes a bar with a flat top and bottom line.

It might be bullish or bearish. A bullish signal occurs when the open and low prices are equal, with the close and high prices being the same. A bearish signal forms when the open and high prices are equal, with the close and low prices being the same.

Marubozu Candlestick Pattern

What is the Importance of Marubozu Candlestick Patterns?

Traders can use the Marubozu pattern to make their strategies depending on the strength of the existing trend. Here’s what the bullish and bearish series of this pattern suggest which can help individuals while trading.

  1. A series of bullish Marubozu patterns show a strong uptrend. Investors and traders take advantage of an uptrend by purchasing stocks with price momentum, hoping that prices will continue to climb. Stop-loss orders can help them manage risk and preserve their wealth if the trend reverses.
  2. A series of bearish Marubozu patterns suggests a significant market downturn. Traders may use various strategies to obtain capital gains from a downtrend. You may short-sell stocks whose price may drop. One may also employ put options, which allow the holder to sell securities at a specified price. 

What are the Benefits of a Marubozu Candlestick?

Marubozu candlestick offers the following benefits.

  1. Indicates a strong trend: The Marubozu candlestick pattern indicates a strong trend. A bullish Marubozu implies a strong uptrend, whereas a bearish Marubozu indicates a strong downturn. This allows traders to identify trends quickly. 
  2. Presents clear trends: The Marubozu candlestick has no wicks or shadows at either end. As a result, there are less risks of errors when determining the opening or closing price of assets. This allows traders to easily plan their deals.  
  3. Easy to identify: It is a pattern with only one candlestick. So, the traders, including beginners, may easily detect it on a trading chart. 
  4. Dependable: This pattern is a reliable indicator as it clearly displays the direction of a trend and also the market strength.

What are the Different Types of Marubozu Candlestick Patterns?

The following are the two types of Marubozu patterns. 

  1. Bullish Marubozu: This candlestick pattern has a long body but no upper or lower wicks. It implies a very strong buying interest. The white marubozu candlestick is an example.     
  2. Bearish Marubozu: It has a long body but no upper or lower wicks. The black marubozu candlestick pattern is an example of this type of pattern that indicates substantial selling pressure in the market.
Marubozu Candlestick Patterns

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 your own 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 your risk-reward ratio.

For Bearish Marubozu Pattern

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

The Risk-Taker And Risk-Averse

As a rule, you should only purchase on days with blue candles and sell on days with red candles. Around closing time on a day, the risk-taker may initiate a trade to purchase the shares. However, he may incur a loss the next day as there was a red candle the next day. So, the risk-averse investor would avoid buying the stock. He would buy the stock the day after the pattern developed or the next day.

To follow this guideline, the trader must check that it is a bullish day before purchasing. As a result, the risk-averse investor can only buy the shares the next day. The purchase price is higher than the suggested buy price. Hence, the stop loss is relatively large when purchasing the next day. However, the risk-averse trader only buys after double-checking that the bullishness is confirmed.

How to Handle Risk with Marubozu Pattern?

If the Marubozu candlestick pattern is bearish, the candles indicate that the high price is equal to the starting price, while the low price is equal to the closing price. The bearish nature suggests that sellers are driving the market. Moreover, other traders also want to sell the security.

If the bearish pattern shows a downward tendency, it may indicate a strong trend. However, if the bearish candlestick pattern shows an uptrend, it indicates a trend reversal. Traders expect the bearish trend to last several trading sessions. As a result, if a trader wants to sell the stock, he must first assess the market and then capitalise on the opportunity.

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. You can find this indicator on a good share market app that offers the 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 you avoid false signals and increase your trading strategy's performance.

FAQs on Marubozu Candlestick

The effectiveness of any candlestick pattern, including marubozu, depends on the market conditions, time frame, and trading strategy used by traders. For better results, you should use marubozu in combination with other chart patterns and technical indicators.

To avoid false marubozu signals, you should wait for bullish or bearish candlesticks to form. You should not trade based on too long or too short candles. In addition, set up a stop loss limit to prevent losses. You can set the price limit above or below the candle as per your trading strategy and the price action of a stock. 

The marubozu candlestick pattern suggests the direction of price movements. The bullish pattern indicates an increase in price, while the bearish pattern shows a price decline.

Yes, colour is important in marubozu candlestick patterns. A green marubozu candle indicates a bullish market sentiment. Whereas, the red candle suggests a bearish sentiment.

No, Marubozu and Bearish Engulfing are different candlestick patterns. Marubozu implies a significant tendency in either way. In contrast, the negative Engulfing pattern signals a reversal of the previous bullish trend and the start of a new negative trend.