Welcome to CryptoGod-1's blog on all things crypto. Today I will be continuing my series on Chart Patterns, which is an area all traders should ensure to familiarise themselves with. In this entry I will be focusing on the Marubozu.
The Marubozu Candlestick
A Marubozois a type of candlestick pattern which indicates an assets price did not trade beyond the range of its opening and closing price. It is a pattern which has a long-bodied candlestick with no shadow, from the Japanese word meaning "close-cropped." It is often regarded as a strong signal of conviction by either buyers or sellers, depending on whether the direction of the candle is up or down. The lack of a shadow means the chart does not extend beyond the opening price range, so it will either continue purely upwards or purely downwards depending on the trend. That means that on up days there is a strongly indication of a a greater demand to buy than to sell, and the opposite can be said on down days. Also, when seen in an uptrend it is used as a signal that the bulls are aggressively buying the asset, suggesting it will continue with upwards momentum, while again the opposite can be said on down days.
How to Recognise a Marubozu Candlestick
For a candlestick pattern to be classified as a Marubozu candlestick formation, at least one of the open or close has to be entirely flat. There are generally three places where the Marubozu candlestick can be found in a chart:
- Early Trend
- Middle Trend
- Blow Off Top
Early Trend: This is when the Marubozu appears shortly after a trend reversal has taken place, and it almost appears in a stealth like manner. At these times, an important news announcement may be adding fuel to the new trend as prices move strongly in one direction. This is when the Mazubozu is likely to be found early in the new trend.
Middle Trend: This happens when the trend has reversed but the followers of the old trend are still hopeful it will continue, as in reverse back. The traders who believe a new trend has started are pushing their trades, making a struggle in the market. This is when a flshapoint appears and the new trend breaks out. During this breakout, the old trend’s followers have relinquished control and everyone is pushing for the new trend to continue. This creates a mismatch between buyers and sellers and the trend takes off with strength. This is where the most common Marubozu candles appear.
Blow Off Top: Finally, when a trend is nearing its end, often a Marubozu will appear near the end of the rally, which is generally due to the price appreciation accelerating in a last gasp of fear of missing out, also known as FOMO. Generally the whales have exited at this point and the market is likely to see a reversal soon afterwards.
The below image from optionstradingiq.com show a couple of examples of where Marubozu candles can be within a trend.
Types of Marubozu
There are three types of Marubozu candles:
- A Marubozu open
- A Marubozu close
- A Marubozu full
The image below from thinkmarkets shows an example of the three types of Marubozu Candles.
Marubozu This is when the Marubozu has a flat opening price, meaning the price is moving in only one direction with no shadow on that side. The closing price however is capable of having a shadow, with the price able to differ from high to low.
Marubozu This is when the Marubozu is the opposite of the Marubozu open, meaning the close should be flat but the price action can be moving slightly in the other direction before aggressively moving in one direction.
Marubozu Full: This is when the Marubozu has a flat open and close. This means the asset opened the session at a particular level and moved in one direction, closing at the end. This makes the open and close prices the same as the high and low, with no shadows on either end.
How to Trade a Marubozu
The Marubozu candlestick is a powerful tool for traders, and those who are experienced understand how to implement their signals into their trading strategy. The clear sign of a Marubozu is that the market is trending in a certain direction, and by breaking down the candle, it becomes clear the assets price is trading in one direction during this period.
Whether it is a bullish or a bearish Marubozu, once a trader has spotted the Marubozu candle close on the chart, the important thing for them to do is consider where the candle sits in the larger trend. If it is in the opening or middle stages of the trend, then a trader would consdier opening a position in the same direction the Marubozu candle is pushing the trend. If it is towards the end of the overall trend, a trader could consider opening a position in the opposite direction of the current trend, in the assumption a reversal is set to take place.
This can often be backed up by using other Technical Analysis, such as RSI, MACD, and any momentum analysis to give a better overall understanding of the trend.
To understand where to place a stop loss and take profit after opening a position, a trader may not have it as clear as with other patterns. Generally it is advisable to place the stop loss below the recent low, in the anticipation that the momentum associated with the Marubozu candle will keep the price action above this level. However, a trader should also consider using other tools and indicators to determine profit-taking and stop-loss orders.
Marubozu candles are especially important if the candle occurs near the resistance or support levels, as it can open on one side and close on the other side, and further add to the current trend. Also it is important to note that unlike the reversal patterns which are considered more powerful as signals or warnings that they generate, the Marubozu candle is usually only used to confirm that the price action may continue in the same trend. The Mazubozu may also be a strong singnal to continue with your trader if you are, for example, in a short position and a bearish Marubozu appears in the middle of the trend.
The image below from learn.bybit.com shows an example of a Marubozu candle and where a trader would enter the trade and place their stop loss. Remember it is important to make a trailing stop loss in a trade like this, as with the candle moving up the chart if a trader moves their stop loss with it then they will be guaranteed to get profit in the chance of a trend reversal.
Risks of using a Marubozu
One thing that is made for certain is that when a Marubozu candle has formed and been spotted in the chart, there is a strong trend which has ensured the price has been powered to these highs or lows in that period of time. Often this can imply a continuation of the trend, however, as noted with the location and types of Marubozu above, a trader needs to be aware of what the Marubozu candle can really mean. This is beacuse the Marubozu is a backward-look at price action, and the larger trend is critical in understanding the potential rewards of the Marubozu candle. This is especially true when a Marubozu appears towards the end of a trend as it sets the stage for a trend reversal. It is therefore vital to keep an eye on the larger trend and larger timeframes to get a better understanding of what the overall trend is, and where the Marubozu is located within this.
Marubozu
The Marubozu candlestick pattern is usually seen as a signal that there is a continuation in the current trend, and it is especially seen as a strong signal when spotted early in a new trend within a crypto chart. This is because the buying / selling pressure is continuing the push the asset to new levels. It is also important to note if it is spotted towards the end of a trend then it could be a signal of an imminent reversal. Though the Marubozu formation is easy to identify, its usefulness is contingent upon analysing its location within a larger trend. It can be particularly useful to add the use of candlestick patterns with technical analysis to get a broader view of the strength of the current trend, but trading cryptocurrencies require you to be vigilant about the broad perspective of the market at large. It is also important to realise this patten does not guarantee anything, and may be the result of a piece of hype which could die down very quickly. The candlestick can be spotted in all timeframes, but it is best used in a longer time frame.
You can find the previous parts to the series here:
Chart Pattern - Part I - Understanding Candles
Chart Pattern - Part II - Doji
If you would like to check out the previous series I did, which focused on Technical Analysis, you can find it here: Recap of the Technical Analysis Series - Parts I - XXV
Have a great day.
CryptoGod-1.
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