Marubozu is a Japanese word. In Japanese, Marubozu means a close-cropped head or a clean-shaven head. It is an easily identifiable candlestick pattern. As these candlesticks are easily recognizable, traders did not closely look into the depth of these candlesticks until lately. A close look into this pattern reveals some excellent hidden signals.
In this article, we are going to discuss the Marubozu pattern in detail. There will be a focus on what should a trader look forward to when the interpretation of the Marubozu pattern fails. And of course, we will look into the trading pattern with the Marubozu candlestick.
The two types of Marubozu candles have shaved heads and shaved bottoms, indicating the absence of shadows or wicks.
There is a strong emotional pattern of traders that can be seen after studying the Marubozu candlestick patterns. The next course of action rests on these interpretations.
What is the Marubozu candlestick pattern?
The Marubozu candlestick pattern is aptly named by the Japanese. As the name suggests, the candlestick resembles a cleanly shaven head or close-cropped head. A Marubozu candlestick has a large body and ideally doesn’t have any wick or shadow. Depending on the prevalence of bulls or bears, the candlestick can be either green or blue.
The Marubozu candlesticks are easily identified by their appearance. The bearish Marubozu is usually denoted by a red or black candle, whereas the bullish Marubozu can be of white, green or blue color. Earlier they were expressed in white colors. Later, we see large green or blue candlestick patterns depending on the viewer’s choice.
From the diagram above, it is evident that there are only two colored candlestick patterns. These are only two large candles with no shadow or wick. These candles can only be differentiated by their colors. There’s no other distinguishable part in their structure.
It must also be noted that candlesticks are characterized by their shape, size and combinations and they are named accordingly. These are diagrams of ideal candlesticks.
Read more: Candlestick patterns you must know
In this article, our discussion will be limited to the Marubozu candlestick patterns and their uses.
A large red candle is a bearish Marubozu candle. And a large green or blue candle is a bullish Marubozu candle. We can see here, that a large candle without a wick or shadow is a Marubozu candle. The red Marubozu is a bearish Marubozu and a green/ blue Marubozu candle is a bullish Marubozu candle. Their position in a chart signifies different meanings.
How do you identify a Marubozu pattern?
The Marubozu candlestick patterns can be identified by their apparent large bodies and ideally without any wick or shadow.
Here is a chart of the Nifty 50. It is a 15-minute chart. In this chart, we can identify two candles. One large red candle and a smaller green candle at different times. Both the candles don’t have wicks or shadows. The red candle is the bearish Marubozu and the green is bullish Marubozu.
The important part of this study is, that we can easily identify the Marubozu candles just from their shapes. We don’t have to look at anything else to confirm what are they. This is the easiest part. one can easily identify a Marubozu from their structure and type their colors.
After confirming what are they a trader now tries to interpret their significance. If a trader can affirm the trend nad then understand the positioning of the Marubozu candles, most of the trader’s job is done. Then the trader can think of using Marubozu in the trade.
Bullish Marubozu Candlestick Pattern
The diagram above shows a bullish Marubozu candlestick. As we have already discussed, it is a large green candle with no wick or shadow.
But we must analyze why this candle looks the way we see it. Let’s assume, this candle was formed in a daily chart. So, the candle shows the price movement of a whole day. At the start of the day, at 09:15 am, the stock price hits the lowest point price of the day. So the opening price of the stock was the lowest. This is the reason that these candles have shaved bottoms. Shaved bottom means there is no shadow of the candlestick and the opening price is the lowest.
After opening, the stock moved only in one way, upwards. So, all bid and ask prices were higher than the opening price, at which points the stock exchanged hands. So, we have a stock in our hand which was sold at consecutive higher prices all through the day and all buyers agreed to buy at higher prices.
These activities of buyers, agreeing to buy the stock at higher prices mean only one thing. That the buyers have a high interest in buying the stock. The dominance of the buyers made the opening price the lowest price of the day. If the buying interest continued all through the day, the candlestick is going to trade at its highest point at the end of the day.
When the last trade of the day is the highest price of the day, the candle has no wick. We can say the candle has shaved head. So we have a candle that has no shadow or wick. Also, the opening price is greater than the closing price. Therefore the candle would be green and the wick and shadow wouldn’t be there. This is an ideal Marubozu candle. And also it is a bullish Marubozu candle.
Sometimes we may have a bullish Marubozu candle that has a very short wick at the end. In some situations, we can find them. It must be noted the stronger the buying interest of the traders, the larger the body of bullish Marubozu. A large bullish Marobozu indicates that a bullish trend is going to set in if it is not already there.
The position of a bullish Marubozu in a chart is significant. If a bullish Marubozu occurs at the end of a downtrend, it indicates the reversal of the trend. If the bullish Marubozu occurs at the middle or the end of an uptrend, it signifies that the bullishness is going to continue.
But whether the significance will be reflected further down the chart will depend on the prevailing market conditions. Also, the trader needs to be confirmed from other technical indicators as well.
Must read: Important Indicators for Technical Analysis
For a bullish Marubozu,
OPEN = LOW and HIGH = CLOSE (ohlc pattern)
Bearish Marubozu Candlestick Pattern
The diagram above shows a bearish Marubozu. Similar to the bullish Marubozu candle, it is a large candle. But the candle is red indicating the bearishness. Earlier, a bearish marubozu candle was denoted by a black candle. It was more commonly known as the black Marubozu and the trading strategies involving the bearish Marubozu candles were known as Black Marubozu strategies. Today we only say the bearish Marubozu and do not mention the colour for identification.
As in the case of bullish Marubozu, the red or the bearish Marubozu candles also do not have wicks and shadows ideally. The candles open with the highest price indicating that there are buyers present in the system. But just after opening, the sellers come together and start selling the stock in a frenzy. Buyers, who are buying the stock are getting the stock at lower prices. It shows that sellers have a strong presence. The stock price falls continuously because supply is more than demand. There are much fewer buyers than the stocks available. Buyers trying to buy cheap. So, the price falls.
The selling spree continues till the end of the day, and the stock is sold at the lowest price at the end of the day. So, we have a stock that has the opening price as the highest price and the closing price at the lowest price. Resultingly, we are getting a candle that opened at the highest price and closed at that lowest price. So, we have a red candle with a large body and no upper wick or lower shadow. This is the formation of an ideal bearish candle.
At times we have a bearish candle that has a very small shadow at the end of a candle. That is also a bearish Marubozu candle. Here the bears are very strong and did not allow the bull to dictate terms.
It must be noted the stronger the selling interest of the traders, the larger the body of bearish Marubozu. A large bearish Marobozu indicates that a bearish trend is going to set in if it is not already there.
The position of a bearish Marubozu in a chart is also significant. If a bearish Marubozu occurs at the end of an uptrend, it indicates the reversal of the trend. If the bearish Marubozu occurs in the middle or at the end of a downtrend, it signifies that the bearishness is going to continue.
It is to be noted that the significance of bearish Marubozu will only be reflected further down the chart if the prevailing market conditions support bearishness. The trader needs to be confirmed from other technical indicators about the overall market condition. A Marubozu alone is not enough for a confirmed trade.
For a bearish Marubozu
OPEN = HIGH and LOW = CLOSE (ohlc pattern)
There are other types of Marubozu candlestick patterns.
From this diagram, we have tried to identify three types of Marubozu candlestick patterns. The candlestick with no shadow or wicks is denoted by Marubozu full. These are ideal Marubozu candles.
But in practice, we may find Marubozu candles with short wicks or shadows as well. During a bullish trend, a Marubozu candlestick may have short wicks or shadows at either end. In a bullish pattern, we call these opening Maubozu and closing Marubozu. Such candlesticks are found in charts.
On the other hand, in a bearish trend, we may find bearish Marubozu patterns with short wicks or shadows attached to them. We may identify them as Marubozu bearish open and Marubozu bearish close. The diagram has explained these patterns.
Trading with Marubozu candlestick patterns
Marubozu candlestick patterns are basically of two types, bullish and bearish. So, either we trade the bullish or the bearish. Before trading Marubozu, it is important to confirm the larger trend and presence of a support/ resistance area near the latest Marubozu signal. Let’s start with the bullish Marubozu signal.
Trading bullish Marubozu candlestick pattern
Ideally, a bullish Marubozu candle can signal a continuation of the bullish trend or reversal of the existing downtrend.
Entry price
The trade entry in the bullish Maroubozu pattern is simple. Enter just above the close of the bullish Marubozu candle. In the daily chart buy the stock the next day, just above the closing price of the Marubozu candle. But before entry, the trader must be assured of the larger market condition and the trend in the larger time frame. Also, it must be confirmed by other technical indicators.
Stop loss and exit price
The stop loss can be of two types. Some traders like to keep the stop loss just below the low of the Maroubozu candle. Others, more risk-averse traders may like to keep the stop loss just below the last swing low. Here in the diagram above, the stop-loss price is shown just below the last swing low price.
The trader can set either of the two, depending upon the market condition and volatility of the stock. For a highly volatile stock, a bigger stop loss like the last swing low is advised.
The Marubozu candlestick pattern signals are for entry and stop-loss prices which can be derived from the chart, the way is shown here in the diagram. It is a visual setup. But this pattern does not show the exit price. The exit price can be set as per the risk/ reward ratio (1:2 or 1:3 or similar) or till the start of the next downtrend when the uptrend loses steam.
Trading bearish Marubozu candlestick pattern
Similar to the bullish pattern, the bearish pattern is also traded the same way. A trader first needs to confirm the trend or trend reversal pattern from other technical indicators and check the trend in the larger time frame. After getting confirmation from all the concerning patterns, the trader will next trade a bearish Marubozu in the following way.
Entry price
Let’s look at the chart above. We have a bearish Marubozu here. It is a long large red candle without shadows. A clear bearish Maruboze. The trader can also see that it has formed near the top of an uptrend, There may be confirmations from other technical indicators that a trend reversal is imminent. Therefore the trader initiates a sell/ short order just below the close of the bearish Marubozu. The trader makes the trade in the next candle when the price is just below the close of the last candle, the bearish Marubozu candle. So this is the trade entry price.
Stop loss and exit
Similar to the bullish Marubozu trade pattern, the stop loss is kept either just above the last swing low, or just above the high of the red Marubozu candle.
The exit price will be on the trader’s decision. Follow the risk/reward ratio or wait till the next reversal.
Indicators to get confirmation of Marubozu signals
Many technical indicators can help for trade confirmation. They are trendlines, support and resistance lines, moving average and Fibonacci retracement lines.
In the picture above we can see how the 200 SMA supports the price trend. After taking support the price was going upward. A bullish Marubozu pattern forms which cross the bearish trendline. This is a perfect set-up for a confirmed bullish trend.
This is how a trader should find confirmation of a trend ideally.
Avoiding false Marubozu signals
I have been warning about these signals. It is necessary to know about the larger trend. This is the hourly chart of Nifty 50. In the chart, we can see a perfectly formed bullish Marubozu, the first one. It was formed in the middle of a downtrend. In this hourly chart, this bullish pattern formed in the last hour.
So we should not jump into this trade for two reasons. The first reason is it was formed in the middle of a downtrend, and the reversal is not confirmed, Secondly the next morning, the day opened with a gap-down. If a trader jumped into this trade without waiting for the confirmation candle, it would’ve been a blunder. We are supposed to enter above the high of the bullish candlestick.
The second signal was perfectly alright for a trader. It formed at the end of the downtrend, and there were prior signs that the bears are losing steam. Secondly, the confirmation candle (the next candle) opened with a gap-up. Traders could enter the stock abovr=e the high of the bullish candle after being confirmed of the trend reversal.
Marubozu in Forex
These candlestick patterns work well in Forex charts also. In fact, these are purely visual patterns. Hence, the formation of these candlestick patterns will send similar signals to traders in charts of all kinds.
A few words
The Marubozu candlestick patterns are not good enough for trade if a trader doesn’t get confirmation from other indicators. With support from other indicators, they work well. In day to day trading, we find many instances when these chart patterns are formed without any further influence. So, it is always better to get confirmation.
After getting confirmation from other indicators, the trader should also look at the larger scenario. And then the trader must wait for the confirmation candle to initiate entry. It is better to work with a larger timeframe. In the shorter time frame chart, there may occur many signals which have no worth.
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