White Marubozu

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21 Aug, 2024

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White Marubozu is a candlestick pattern where there is a single big candle with very small or no wick at all. It usually appears at the end of a downtrend or end of a price decline and signifies a reversal upwards. Thus, it indicates a trend reversal.

The candle’s color is green, and the intensity of bullishness depends on its size. However, it is necessary to understand other indicators to get explicit confirmation. A trader should note the location of the candle’s appearance in the chart and should ensure that it comes after a downtrend because only then is it a sign of reversal upwards.

What Is White Marubozu?

White Marubozu is a Japanese candlestick pattern that typically appears at the end of a downtrend to signify a bullish reversal.
It shows price rejection from lower levels, and the trader is ready to see an upward movement of the market, provided the candle is placed at the correct location.
The candle is a big green one, and it may or may not have wicks, or the wicks may be extremely small.
In order to ensure confirmation, it should be used in combination with other relevant indicators in the chart.

White Marubozu Candlestick Pattern Explained

White Marubozu is a Japanese candlestick pattern where a big green candle appears in the chart and is a vital sign of trend reversal. However, the location and size of the candle are essential for the trader. The bigger the size, the stronger the possibility of a trend reversal, and the candle appearing at the end of the downtrend is the signal of a possibility of the market moving upwards in the future.

Thus, the White Marubozu candlestick pattern is both a bullish and a reversal pattern. The wick may exist or not exist. In case it exists, both the wick may be very small, or there is an upper wick and no lower wick, or there is a lower wick and no upper wick. Due to the above features, it is pretty easy to identify in a chart. From the overall appearance of the candle, one can conclude that the opening price and the day’s lowest price are the same or with extremely little difference. Similarly, the closing price and the day’s high are either the same or have a very small gap.

Here, it is essential to note that this pattern is just a mirrored form of the Black Marubozu candlestick pattern, where the chart signifies a bearish market sentiment for the financial instrument.

At this point, it is equally important to mention that the volume at which the security is traded when the White Marubozu candlestick pattern appears in the chart also plays a role in deciding the intensity of trend reversal. A high trading volume will support the fact that the trend has reversal.

From the above explanation, it is clear that trading requires traders to use different tools and techniques to get confirmation while deciding entry and exit points for any financial instrument. For this purpose, technical analysis plays a crucial role. The various past and current price trends that the candlesticks depict form a solid basis for such decisions. The White Morubozu is such a pattern that, when combined with other indicators, can give a decisive view of the market movement and sentiments.

How To Identify?

Here, learners will get an idea of how to identify this specific type of White Marubozu candlestick within a chart. As already mentioned, this pattern shows a bullish sentiment in the market because the opening price is at a lower level, but the market closes at a much higher level. Due to the lack of wicks or the presence of very small wicks, a trader can confidently assume that the price retracement is very minimal, both downwards and upwards.

If one assumes that all other factors that contribute to an uptrend are in place, then a big green candle with very little or no shadow that appears at the end of a downtrend will change the market movement towards the upside. Thus, here is a summary of the points that are used for the identification of this specific pattern:

A big green candle.
A single candle.
Shadow may be present or may not be present.
Shadow, if present, will be very small, either up or down.
It appears at the end of a downtrend.
The volume traded for that security must be substantial.

The pattern in the chart below from TradingView is very clear. The daily candlestick chart of Manappuram Finance is shown, and the White Marubozu or Bullish Marubozu is highlighted with an arrow. After that, the market moved up steadily during the subsequent few trading sessions.

Source

It is important to note that before the above type of candle appeared, the market had gone down to some extent, or there was a bearish move. However, the wisest step would be to wait for the next day to confirm whether the market is moving upwards or not because just a formation of this specific pattern does not mean that the bulls are strong. The bears may suddenly take over the very next day, causing the market to go down. Therefore, a trader should not be in a hurry to jump into the market, just depending on this Marubozu pattern for one day.

How To Trade?

Overall, three factors play an essential role in the White Marubozu candlestick process: the candle pattern, the location on the chart, and the volume traded. In the case of this pattern, the candle must compulsorily appear at the end of a downtrend, which means that the market should first show a bearish movement for some trading sessions and then display this candle.

Next comes the selection of the entry point. At this stage, the trader should be conservative. They should be sure of their decision. The best way to do that is to wait for the next candle and check whether it has broken the highest level of the White Marubozu of the previous day. This should be the entry point because the new candle is now confirming the uptrend.

After that comes the process where the trader has to see that the trade is protected from any unforeseen or sudden unpredictable movement; for this, there is a stop loss. A stop loss is a price that the trader sets to ensure the loss is within the risk-taking ability of the trader. In this case, ideally, this stop loss can be set at the lowest level of the Marubozu.

Other things to consider over here are the support and resistance levels. It is always better to draw these levels to give a better understanding of the highest or lowest levels that the market may move within the subsequent few trading sessions. This helps in getting an idea about the maximum profit or loss that the trade may incur, which also helps in deciding the exit points once the trader enters the trade.

Examples

Here are some examples that explain the concept.

Example #1

Max is a full-time stock trader, and he has identified the stock of XYX Industries as a good stock that has the potential to earn profits in the short run. For almost six months, the stock has been showing a downtrend, though not in a very steady way. But with the sudden news about its merger with ABC Industries, which is an equally good company in the same sector, he expects a bullish market sentiment, and sure enough, he is able to stop a White Marubozu after one trading session. The next day, a small green candle appears above the closing price of the Marubozu, confirming an uptrend, which is his entry point for trade.

Example #2

Due to the market showing an upward rally and the Nifty 50 experiencing a gain of 1.96%, powerful momentum is noticed in various stocks in sectors like oil and gas, auto, PSU banks, real estate, and media. Many of them displayed a White Marubozu pattern in the charts, indicating a further uptrend. According to Prashant Sawant, founder of Catalyst Wealth, the bulls have successfully absorbed the selling pressure for many stocks in the above sector, giving them a push upwards.

Benefits

Some benefits of the pattern are given below:

It is an essential indicator of uptrend. Traders can easily use them to their advantage if the pattern appears at the correct location.
It is easy to identify them because of their appearance. They are big green candles, which are very prominent at the end of a downtrend, with very little or no shadow.
Individuals successfully use it to make trading decisions related to various financial instruments.
Since the appearance of the candle indicates that the bulls are in total control, the trader gets confidence about the uptrend.

Limitations

Some limitations of the concept are as follows:

The most critical limitation is that it is not a perfect indicator of uptrend. It is necessary to use other indicators in combination with it and study the market thoroughly before taking a trade.
Market manipulators often take advantage of situations where the financial instrument is in demand, and because this specific pattern forms, the bulls start controlling the market. Manipulators often pick such stocks and try to buy in bulk and raise prices further to create a bubble, which misguides the investors.
The success rate of this pattern is not the same in all timeframes. It will change according to hourly, daily, weekly timeframe, etc. Therefore, the trader needs to be sure of the timeframe for which they wish to trade and search for this indicator during the period. Consulting longer timeframes for a short-term trade will lead to confusion because the candlestick pattern may not be present in all of them.

White Marubozu vs Black Marubozu

Even though both the above patterns are Japanese candlesticks that signify a change in the ongoing trend, they are pretty different from each other as indicators. Here are some differences between them.

The former is an indicator of an uptrend, and the trader can expect the market to move up, while the latter is an indicator of a downtrend, where the trader expects the market to go down.
This is what also makes the former known as a bullish pattern, and the latter is referred to as a bearish pattern.
The former typically appears at the end of a downtrend, and thus, it signals an upward move in the future for the financial instrument. But the latter appears at the end of an uptrend, signaling a down move in the future.
For the former, the opening price is the lowest price of the day, and the closing is the highest for the day. But for the latter, the opening is the highest of the day, and the closing is the lowest for the day.
Traders use the former successfully to go long on security, while they use the latter to go short on security.

Frequently Asked Questions (FAQs)

• How to trade White Marubozu with moving averages?

Traders use this pattern in combination with moving averages to get confirmation. In the process, first, the trader has to find a price movement where the candles show a downtrend till the moving average; then, they should check whether the specific Marubozu has appeared at the moving average, and then they have to go long at the price which breaks the high of that candle. It is better to put a stop loss in case of any unexpected movement in the opposite direction.

• Can the White Marubozu pattern generate profits?

This candlestick pattern is a very good indicator of uptrend, and traders widely use it in the financial markets to generate profits. However, it should be used in combination with other essential indicators so that one can be sure of the market trend. Using it as a standalone indicator does not provide any guarantee of profits.

• Which indicators act best in combination with the White Marubozu pattern?

Indicators that act best with this pattern are the moving averages, which may be simple moving averages or exponential moving averages. When the prices trend above the moving averages and the Marubozu is bullish, the trader can assume that the market will go upward in the near future.