A momentum candlestick pattern is the best way to explain the marubozu candle pattern. It typically acts as a leading indicator for traders that the price is anticipated to continue in a particular direction without any opposition.
A one candle makes up the Marubozu candle pattern. It is a simple formation that is simple to find. When compared to the candlesticks around it, the marubozu candlestick pattern can be summed up as being lengthy. In actuality, a flawless marubozu has no shadows, although that is not very common. The length of either of its upper or lower shadows in relation to the body is very short.
The Japanese word marubozu, which means “bald head” or “shaved head,” suggests that the candlestick has no or few wicks (or shadows). When a candlestick has no wicks or shadow, it indicates that the high and low prices for the trading session were roughly the same level for both the opening and closing prices. That is, if the trading session started at a high price and ended at a low price, the pattern is considered to be bearish; if it started at a low price and ended at a high price, the pattern is said to be bullish.
It is uncommon to see a marubozu candlestick, nevertheless, without at least a small amount of shadow at one end. Thus, at least one of the open or close must be flat for a pattern to be categorized as a marubozu candlestick formation. In a perfect marubozu, the market opens the session and begins to rally in a specific direction before closing exactly at the conclusion. As a result, both the open and close are flat. As a result, the high and low, or low and high, depending on the situation, are priced the same as the open and close.
Bullish Marubozu: What is it?
The absence of the upper and lower shadows in a bullish marubozu signifies that the low and high are equal to the open and close, respectively. Consequently, a full bullish marubozu forms whenever the Open = Low and the High = close.
A bullish marubozu shows that an asset has such strong buying demand that market players were willing to purchase it at every price point throughout the day, causing the asset to close close to its day’s high. Whatever the previous trend, the movement on the day of the marubozu shows that it has shifted and the asset is now bullish.
It is anticipated that a rise in bullishness will follow this quick change in sentiment and that this bullishness will last for the following few trading sessions. Consequently, a trader should consider buying potential when a bullish marubozu appears. The purchase price need to be close to the marubozu’s closing price.
What is Bearish Marubozu?
Bearish Marubozu is a very bearish sign. Here, the open corresponds to the high and the close to the low. Close = Low, and Open = High.
A bearish marubozu shows that the asset is under such heavy selling pressure that traders actually sold at every price point throughout the day, causing the asset to close close to the day’s low. Whatever the past trend, the behavior on the marubozu day implies that the attitude has shifted and the stock is now bearish, regardless of the prior trend.
One should search for shorting opportunities because it is anticipated that this abrupt shift in attitude will continue throughout the coming trading sessions. The selling price need to be close to the marubozu’s closing price.
What is Opening Marubozu?
On a daily or weekly chart, a flawless Marubozu is relatively uncommon; but, in intraday charts, they can be seen during times of extremely turbulent and powerful movements.
The Opening and Closing Marubozu is a more useful variation of this Japanese candlestick.
When the opening price coincides with either the day’s high or low, opening marubozu candlestick pattern is formed.
When the opening price is equal to the day’s high, Marubozu is bearish; when it is at the day’s low, Marubozu is bullish.
It means that the bears or the bulls gained control as soon as trading began and drove prices in that direction for the remainder of the session.
A bullish pattern occurs when the bulls gain control as soon as trading begins, leaving any initial short trader hopelessly stuck. A bearish pattern occurs when traders who are long a position do not have a chance to quit the trade as the price slips down without a break.
What is Closing Marubozu?
It develops when the close price is equal to either the day’s high or low.
It is referred to as a bearish Marubozu when the close price is equal to the low and as a bullish Marubozu when the close price is equal to the high.
It shows that not only did prices continue moving in a single direction despite initial trepidation at the outset, but also that the participants kept their feelings up until the very last second of the trading session.
As a result, it is anticipated that the price will continue to move in the direction of the closing when the trading session resumes. Once more, it is an uncommon pattern to see.
The Marubozu Pattern: The Psychology
The marubozu is a single candlestick pattern that can reveal information about market mood at a particular moment. The marubozu pattern, like all candlesticks, may be seen on every candlestick price chart and on all periods. It provides information about how the market performed during that particular trading session.
Typically, competition between buyers and sellers over who will control the market is constant. The marubozu candlestick pattern forms when one party wins a trading session by a wide margin. The pattern may be bullish or bearish depending on who was in charge of the day. During the trading session, buyers prevailed according to a bullish marubozu pattern, while selling dominated according to a bearish marubozu pattern.
The marubozu candlestick pattern, which opens at one end and closes at the other, basically shows that the market traded to the close without any significant pullback. The pattern thus reveals the market participants’ eagerness. It symbolizes ongoing trading by investors seeking to drive the price in a particular direction.
When the market exhibits urgency in one direction, it leads to strong expectations; for example, when you witness a bullish marubozu, you would expect prices to rise more in the near future. The market, however, could not behave as you had anticipated.
In fact, after the creation of a marubozu candlestick, the market frequently fails to continue because the traders driving the price in that direction may become weary or there may be profit-taking after such a significant advance in one direction. A purchasing or selling climax could be indicated by the pattern, depending on the price trend and swing where it forms.
An upswing of an upward-trending market experiences buying climaxes, which are typically identified by a tall bullish marubozu candlestick. It demonstrates that traders are fervently buying and driving the price up. Even the spectators can participate out of fear of missing out (FOMO). This buying frenzy typically comes to an end with a tall candlestick that closes near the trading session’s peak. Exhaustion and profit-taking come next, resulting in a collapse that could be a pullback or a complete reversal.
In contrast, capitulation, also known as a selling climax, takes place during a market’s downswing and is typically signaled by a tall bearish marubozu candlestick. It demonstrates that traders are fervently driving down prices by selling. Even previous buyers who had resisted starting a transaction may now start selling out of desperation to avoid losing everything. This selling frenzy is known as capitulation when it concludes with a tall candlestick that closes near the session low. When an asset is inexpensive, the smart money will rush to acquire it in large quantities, which will cause a price increase that might either be a pullback or a complete reversal.
A breakthrough of a support or resistance level may result from the marubozu pattern, particularly if it appears at the start of a price swing. The three white soldiers or three black crow patterns in this instance may include it. On the other hand, the marubozu pattern can also appear during a pullback in the opposite direction of the market trend.
Marubozu at the Beginning of a New Trend
There are instances when a trend reverses gradually in a style that is almost stealthy. When prices are moving strongly in one direction, a significant news event could drive the new trend. A Marubozu candlestick pattern might be visible early in the new trend in a situation like this.
Middle of a Trend Marubozu Pattern
In technical analysis, a war may be fought as a trend reverses because the supporters of the previous trend are still confident it will last. Traders who think a new trend has begun are simultaneously voting with their trades. There is initially conflict, and when the new tendency starts to flare up, that conflict becomes a flash point.
The followers of the old trend have given up control during this breakout. Everyone is excited about the new trend. Because the quantity of buyers and sellers is unbalanced, the trend accelerates. Marubozu candle patterns are common in the middle of market trends.
A Marubozu Pattern May be Found on a Blow-Off Top.
A blow-off top signals the end of a mature rally, with price appreciation quickening as a last-ditch attempt to join the crowd (FOMO).
The whales have left by the time the trend ends, and the market quickly turns around.
Trading the Bullish Marubozu
When the price moves quickly to the upside, the bullish Marubozu pattern develops. The open price of the candle determines its low price, and the Marubozu closes it at its high price.
When you discover the Marubozu pattern, think about how it fits into the bigger trend.
A strong bullish candlestick that closely resembles a bullish Marubozu precedes the bullish Marubozu on the above 2-hour Bitcoin chart. The fact that this double combination happens towards the commencement of a new trend suggests that the trend is just getting started.
Rarely will you witness a Marubozu running against the general trend by themselves. Consequently, the trader might anticipate greater upside potential when the bullish Marubozu develops.
As a result, one strategy for trading the bullish Marubozu is to enter the trade on the following candle and set a stop loss immediately below the swing low.
Trading the Bearish Marubozu
When the candle opens close to the high opening price and closes on the low, a bearish Marubozu is formed. This candle leaves behind a large crimson or black candle without wicks, indicating a severe downward trend has been in effect.
The market for cryptocurrencies started to trend lower shortly after Bitcoin reached its peak in April 2021.
The bearish Marubozu candle pattern on April 15 in the Ethereum 1-hour chart above suggests a significant downturn (bearish trend). The market is already correcting lower, as can be seen when analyzing the price movement that took place before this candle pattern.
Because of this, the bearish Marubozu shows up in the middle of the trend, just as the bulls are giving up and the market is turning negative.
The ideal strategy to trade the bearish Marubozu when it arises at the start or middle of a trend is to open on the following candle and place your stop loss just above the swing high from the most recent period.
A Second Method for Trading Marubozu Candlesticks
Waiting for a confirmation to come in the price action after the marubozu candle appears is another trading method for the marubozu candle pattern.
One strategy to achieve this is to hold off on entering a position until the candle that follows the marubozu candle has closed above the closing price of the marubozu candle.
To ascertain whether the market is moving in a specific direction and prevent a false breakout, it may also be helpful to use additional momentum indicators like the RSI, MACD, and Stochastic.
The second candle after the marubozu candle supports the market trend, as can be seen in the USD/JPY 30-minute chart below. When the second candle is finished in this instance, a trader will open a position with a stop loss set at the marubozu’s lowest price level (or below).
The Marubozu Signal: Is it Reliable?
One thing that’s evident when a Marubozu candle pattern is seen is that a strong trend has propelled prices to the high or low extreme of the time period. This kind of price movement typically denotes the continuation of a trend.
The Marubozu’s position within the bigger trend is crucial to its potential benefits, but this price action is backward looking. In a blow-off, for instance, if the Marubozu appears toward the end of the trend, it really creates the conditions for a trend reversal rather than a continuance.
A trade opportunity exists if the Marubozu appears in the middle of the trend. That chance won’t, however, be as fruitful as if the Marubozu had emerged at the start of a fresh fad.
Therefore, the Marubozu’s position in relation to the overall trend is crucial for producing encouraging signs. Avoid Marubozu formations near the end of an established trend unless you’re keeping an eye out for a potential reversal.
What Benefits and Drawbacks Come with the Marubozu Candlestick Pattern?
Strength of Marubozu Candlestick Pattern:
- Simple to recognize
- a typical candlestick pattern found on trading charts.
- aids in assessing the asset’s trading momentum and market mood
- Effective scalping trading pattern
Weaknesses of Marubozu Candlestick Pattern:
- You are likely to be caught off guard during a fake breakout.
- Stop loss orders are frequently placed at the marubozu candle’s opening price, increasing the likelihood that they will be executed.
Marubozu candlestick patterns point to a time when market activity will be quite decisive. When the Marubozu is in the negative, closing prices are lower than the period’s opening prices, providing a signal for traders to open short positions. In contrast, closing prices are higher than opening prices when the Marubozu is bullish, providing a trading signal for fresh long holdings. Changes in these patterns imply that the candle’s closing price will continue to move in that direction.
Be cautious if the Marubozu is seen near the end of a mature trend because it can indicate a reversal that is about to occur. The Marubozu formation is simple to see, but its utility depends on how it fits into a bigger trend. Trading cryptocurrencies necessitates being alert to the big picture of the market, even though this technical indication might offer analytical insights about the future direction of a price. It is strongly advised to combine fundamental analysis with a variety of other technical indicators.
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