What is a Marubozu candlestick, and how does it work?

The Marubozu candlestick, while relatively obscure among Forex traders, is easy to recognise once you understand its key characteristics. Its infrequent appearance on charts does not diminish its significance. Once you identify this pattern, you can confidently assess the strength of its signal by considering its position within the broader trend.

What is a Marubozu candlestick?

The Marubozu candle is a unique candlestick pattern in technical analysis, characterised by its singular structure and absence of shadows, which convey strong market sentiment. The term 'Marubozu', derived from Japanese, translates to 'bald' or 'shorn', aptly describing its appearance—this candlestick appears as if its tails have been 'trimmed', resulting in a clean, uninterrupted body.

How to identify Marubozu candlestick patterns

Traders classify the Marubozu candle depending on whether it has a tiny wick and where. Let's examine the three types of Marubozu candle patterns.

• Marubozu Full. This pattern has no wick on either side of the candle. It can be bullish or bearish.
• Marubozu Open. This pattern has a short wick on the closing side of the candle and no wick on the opening side. For a bullish (green) candle, the wick is on top, and the opening price is the lowest. For a bearish (red) candle, the wick is below the candle, and the opening price is the highest.
• Marubozu Close. This pattern has a short wick on the opening side of the candle and no wick on the closing side. For a bullish (green) candle, the wick is at the bottom, and the closing price is the highest. For a bearish (red) candle, the wick is on top, and the closing price is the lowest.

How does a Marubozu pattern work?

The Marubozu candlestick signals robust market sentiment and momentum in a specific price direction. Its effectiveness lies in its precise representation of market psychology, providing traders with unmistakable signals that are particularly accessible even to those new to trading.

The Marubozu pattern serves as a barometer for market sentiment. A bullish pattern suggests overwhelming buying pressure, while a bearish candlestick indicates intense selling pressure. This clarity helps traders gauge the prevailing market mood and make informed decisions.

However, it is essential to remember that Marubozu should not be viewed in isolation. We should analyse the pattern in the context of other technical indicators and chart patterns to confirm market sentiment. This rule applies to every instrument used in market trading.

In addition, the chances of success of any candlestick vary depending on the market situation, timeframe, and trading strategies. Marubozu patterns have a probability of success of approximately 65–70% when used with other technical indicators and price movement analysis. However, no trading strategy or indicator can guarantee profits, so traders should always apply adequate risk management techniques and follow their trading plan.

Types of Marubozu candles

According to the trend direction, we identify the following varieties:

• Bullish Marubozu—an upward green candlestick
• Bearish Marubozu—a downward red candlestick

Let's dwell on these types of patterns in more detail.

Bearish Marubozu

The bearish Marubozu primarily indicates a strong bearish sentiment in the market. This pattern typically appears after an uptrend, suggesting a potential reversal or continuation of a downtrend. The example below shows a bearish Marubozu Close after the price broke the channel.

1. Stop loss
2. Entry level

It has a long body with no upper or lower shadows, indicating that the opening price is equal to the high and the closing price is equal to the low or has a lower wick. This pattern signifies that the seller dominated the trading session, reflecting intense selling pressure and a lack of buying interest.

The presence of a bearish Marubozu indicates strong downward momentum, suggesting that prices are likely to continue falling. It can also show a shift in market sentiment from bullish to bearish, which can lead to further price declines.

Bullish Marubozu

The bullish Marubozu candlestick pattern has small or no upper and lower shadows. This pattern indicates a strong demand for the asset in the market or that market participants are willing to pay any price to buy it during the trading session.

1. Stop loss
2. Entry level

In this regard, the trader should look for entry points to buy after seeing a bullish candle. The entry level should be slightly above the closing price of the bullish Marubozu.

Advantages and disadvantages

The Marubozu candlestick is one of the most reliable candles in technical analysis. It is an effective intraday trading tool, allowing you to determine the dominant side of the market—buyers or sellers. However, the effectiveness of this candlestick may vary depending on the current market situation.

Also, like any other technical pattern, the Marubozu has advantages and disadvantages.

Advantages:

• Marubozu candlesticks serve as a reliable indicator of market trends, with candlesticks pointing upwards indicating an uptrend and candlesticks pointing downwards indicating a downtrend. This clarity makes it much easier to determine the direction of market movement, empowering traders with valuable information.
• Marubozu trading patterns are easy to identify due to their specific appearance—candles without shadows or wicks. Even novice traders can easily detect these patterns. The lack of wick or shadow candles on Marubozu makes opening and closing prices clearer, allowing traders to make informed decisions confidently.
• They indicate price stability. A pattern can serve as a reliable signal of price movement, providing a clear understanding of trend direction and market conditions, which helps traders make better-informed decisions.

Disadvantages:

• It is applicable in specific environments only. Marubozu candles are most effective in markets with stable trends, making them less helpful in high-volatility environments or markets with a limited price range.
• While Marubozu candles are powerful tools, using them alone can cause traders to miss necessary market signals. It is essential to combine them with other analysis tools, such as indicators and chart patterns, to ensure a comprehensive understanding of the market.
• Marubozu candlesticks only provide information on the opening and closing price without considering the daily highs and lows, leading traders to make potentially erroneous judgments.

How do you trade using a Marubozu trading pattern?

The Marubozu pattern indicates a strong market trend. If the candle is bullish, it suggests that buyers are in control, which signals buying. If the candle is bearish, sellers dominate the market, which signals to exit or sell.

To trade successfully, you must do the following:

• Monitor the market carefully and wait for bullish or bearish candlesticks to appear.
• In a bullish market, wait for a bullish Marubozu to form. Consider entering a long position at the opening of the next candle following the bullish candlestick. To manage risk effectively, set a stop-loss order just below the low of the Marubozu.
• In a bearish trend or after observing a bearish Marubozu, open a short position when the price falls below the low of this candle and place a stop-loss order above the high of the bearish Marubozu to protect against unexpected price movements.

It is important to remember that trading should be comfortable and informed. Before investing money, one must carefully analyse the market, develop a trading strategy, and conduct research.

Trading Marubozu patterns requires discipline and confirmation, as their clear signals can lead to profitable trades with proper risk management.

Final thoughts

• The Marubozu pattern is a single candle without shadows, signalling high market pressure.
• Two types of Marubozu, bullish and bearish, indicate different market sentiments.
• A bullish Marubozu shows intense buying activity, opening at the low and closing at the high.
• A bearish candlestick indicates prevailing selling pressure by opening at the high and closing at the low.
• The Marubozu candlestick pattern is excellent for assessing market sentiment as it signals a continuation of the current trend.