Marubozu Candlestick Pattern

Published on :

21 Aug, 2024

Blog Author :

Edited by :

Reviewed by :

A Marubozu candlestick pattern refers to the formation of a single candle in a financial instrument’s price chart, indicating that the asset did not trade below or above the opening price and the closing price. It signals strong selling or buying pressure in a financial market.

The lower and upper shadows are not present in this candlestick pattern. This means that the opening price as well as the closing price are at the low or high of a particular trading session. Its unique feature makes it easy easily identifiable in a financial instrument’s price chart. The single-candle formation can be of two kinds — bullish and bearish.

Marubozu Candlestick Pattern Meaning

Marubozu candlestick pattern refers to a candlestick that signals that an asset’s price did not rise or drop beyond the opening and closing price in a specific trading session. It gives the indication that a financial instrument was subject to strong selling or buying pressure in the market.
Bearish and bullish are the two types of Marubozu candles that can appear in a financial asset’s price chart.
A key importance of this candlestick pattern is that it helps people understand a security’s price action and potential trends better.
This pattern allows people to identify trend reversals and generate gains.

Marubozu Candlestick Pattern Explained

Marubozu candlestick pattern refers to a single candlestick formation representing a financial market’s resolve to move toward a particular direction without any significant pressure or resistance from the opposite side. This forces the price not to extend above or below the high or low of the trading session.

In Japanese, ‘Marubozu’ translates to ‘close-cropped’, indicating a candlestick without any shadow. This means that on a gaining day, a security’s opening price is the same as a day’s low while the closing price is the high recorded that day. On the other hand, on a losing day, a financial instrument’s opening price is equal to the day’s high and the closing price is equal to the day’s low.

Note that a perfect Marubozu is extremely rare. That said, one may be able to observe them in periods associated with high volatility and strong price movements.

Types

As noted above, there are two types of Marubozu candles. Let us look at them in detail.

Bullish Marubozu Candlestick Pattern

In the case of this pattern, the absence of lower and upper shadows signals that the high price is the same as the low price while the low price equals the high price. This indicates that a financial asset has increased buying interest in the market to such a degree that individuals want to purchase it irrespective of the price point in an ongoing trading session. Because of this, the financial instrument’s price closes at a high during that session.

Bearish Marubozu Candlestick Pattern

This pattern signals extreme negative sentiment in a market with regard to a financial instrument. Such a pattern has a high price, which is the same as the opening price, whereas its low price equals the closing price. It denotes the sellers’ complete control of the market. The selling pressure is so high that individuals are willing to offload their shares or units at any price during the trading session. This leads to the asset price closing at the low price recorded in that session.

How To Identify?

A full Marubozu candlestick has a lengthy, large body with no shadow or wick. This makes it extremely difficult to miss. Such a candlestick’s sturdy body indicates a powerful movement in a downward or upward direction.

Source

In the above chart, the green candles without a wick represent bullish Marubozu candlestick patterns. On the other hand, the red candles with no shadow represent bearish Marubozu candles. One can view similar charts on TradingView to better identify such patterns.

How To Trade?

One must look at the following key pointers to use this candlestick pattern and make financial gains.

Reversal Signal: Bullish as well as bearish Marubozu can serve as reversal signals if they appear on a security’s price chart following an extended trend. To understand better, consider a bullish Marubozu candle that appears after a downward trend in a stock. It is a sign of a potential reversal of trend. Accordingly, one can buy the stock to benefit from the potential uptrend.
Trend Confirmation: Once this pattern forms following a downtrend, it can confirm the strength of the bearish trend. Similarly, the formation of his pattern after an uptrend can indicate the strength of the asset’s bullish trend.
Volume Confirmation: Traders should consider looking for strong trading volumes when the formation of such a pattern takes place because it increases the reliability of such patterns. In other words, a higher volume is able to validate this candlestick pattern’s significance.

Examples

Let us look at a few Marubozu candlestick pattern examples to understand the concept better.

Example #1

Suppose John, a trader, has the ABC stock on his watchlist for over a month looking to identify the right entry point. He noticed the formation of a green Marubozu candlestick pattern in the price chart following a downtrend. Thinking that it could be a false signal of a trend reversal, John looked at the volume of the stock for confirmation.

After noticing a strong trading volume during the pattern formation, John placed a buy order for 200 shares at $5 per share. His decision was correct, as the stock went into an uptrend. He sold his holdings at $10 per share and pocketed a profit of $1,000 per share within a week.

Example #2

On March 1, 2024, Nifty 50 opened above $22,000 and breached the resistance levels at 22,080 and 20,300. The formation of a bullish Marubozu candlestick pattern occurred in Its daily chart, and the index recorded the biggest gain since January 29, 2024, thus signaling that the buyers dominated that trading session. According to experts, the uptrend of the Nifty 50 index strengthened the banking stocks’ rebound in the market.

Importance

One can understand the importance of this candlestick formation by going through the following points:

It helps people understand a financial instrument’s potential trends and price action better.
Such a pattern provides valuable insights into a financial instrument’s momentum. Moreover, it assists traders in identifying potential entry and exit points with regard to trades.

Frequently Asked Questions (FAQs)

What is the difference between engulfing and Marubozu candlestick patterns?

Let us look at the key differences between the two candlestick patterns:

1. Marubozu candles have no wick, whereas engulfing patterns have wicks.
2. Engulfing candlestick patterns have short bodies, while Marubozu candles have 3. lengthier and larger bodies.
4. Marubozu is a single-candlestick pattern, unlike the engulfing pattern, which consists of two candles.

What is the opening Marubozu and closing Marubozu candlestick pattern?

An opening Marubozu candlestick consists of a full body but has no wick on the opening price’s side and a little wick on the closing price’s side. On the other hand, a closing Marubozu candlestick features no wick on the side of the closing price and a small wick on the side of the opening price.

Is the Marubozu candlestick pattern effective?

Individuals may consider utilizing this candlestick pattern along with price action analysis and other technical indicators to increase the possibility of achieving success.