Every trader has heard of the Marubozu pattern. However, they don’t recognize that this unique candlestick is worth much more attention. The Marubozu candlestick pattern can provide analytical insight into the future direction of the price of a stock.
What is the marubozu candlestick?
Marubozu means “bald” or “shaved” in Japanese, and this is shown in the absence of wicks or shadow on the candlestick. It means the opening or closing price will be the same as the maximum price of the candle. The absence of shadow indicates that the trading session opened at a high price and close at a low price at the end of the day (or the opposite).
In simple terms, a marubozu can be described as a long candle relative to other candles. Its shadow length relative to the body is very small. A perfect marubozu has no shadows, although these are quite rare. A marubozu is also sometimes referred to as a dominant candlestick or a significant candle as it shows very strong control by either buyers or sellers. There are two types of marubozu – the bullish marubozu (green in colour) and the bearish marubozu (red in colour). The bullish formation occurs when the closing price is higher than the opening price, while the bearish pattern occurs when the opening price is higher than the closing price.
How to identify the Marubozu candlestick pattern?
It is fairly easy to identify a marubozu pattern because it is a single candlestick having a real body without any kind of shadows. Typically, when bullish, they are white or green on charts and when bearish, they are red or black. In bearish marubozu, the open price is equal to the high price and the close price is equal to the low price. For bullish marubozu, the open price is equal to the low price and the close price is the same as the high price.
The identification mark for an ideal marubozu will be:
- A large real body
- There will be no shadow at either side of the candle
- The color of the candle will be of a significant meaning
In actual market conditions, a perfect marubozu is rare. Therefore, there is a minor difference sometimes – usually, less than 0.01 percent of the candle range, between the open/close prices with high/low price is neglected when identifying a marubozu.
What does the marubozu tell traders?
Marubozu candlesticks can be found on all charts and all-time frames. Depending on who controlled the day, they can either be bullish or bearish. They are used with technical analysis to show how a stock traded for the day. Usually, stock trading is a competition between buyers and sellers. There are days when one side wins by far, therefore the formation of the marubozu candlestick pattern.
It is a single candlestick pattern that can give insight into the sentiments of the market at a given time. Basically, its appearance means that the market traded to the close without any lasting retracement.
A bullish marubozu indicates that there is so much buying interest in the stock that the market participants were willing to buy the stock at every price point during the day, so much so that the stock closed near its high point for the day. It does not matter what the prior trend has been, the action on the marubozu day suggests that the sentiment has changed and the stock is now bullish.
A bearish marubozu indicates that there is so much selling pressure in the stock that the market participants actually sold at every price point during the day, so much so that the stock closed near its low point of the day. It does not matter what the prior trend has been, the action on the marubozu day suggests that the sentiment has changed and the stock is now bearish.
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