The word Marubozu means “Bald” in Japanese.There are two types of marubozu – the bullish marubozu and the bearish marubozu. A Marubozu can appear anywhere in the chart irrespective of the prior trend. Marubozu is a candlestick with no upper and lower shadow, hence looking bald. A Marubozu has just the real body, as shown below.
The red candle represents the bearish marubozu, and the blue represents the bullish marubozu.
Whenever the Open = Low and High = close, a bullish marubozu is formed.
A bullish marubozu indicates that so much buying happened in the stock, that everyone single person were willing to buy the stock at every price point during the trading session, hence stock closed near its closing price. It does not matter what the prior trend has been, the action on the marubozu shows that the sentiment has changed and the stock is now bullish.
With this occurrence of a marubozu the expectation has turned bullish, and hence one would be a buyer of the stock.
Entry on Bullish Marubozu
When High Breaks trigger your entry.
Stop Loss on Bullish Marubozu
What if after buying, the market reverses its direction and the trade goes wrong? Like I had mentioned earlier, candlestick patterns come with an inbuilt risk management mechanism. In case of a bullish marubozu, the low of the stock acts as a stoploss. So after you initiate a buy trade, if the markets move in the opposite direction, you should exit the stock if price breaches the low of the marubozu.
Bearish Marubozu indicates extreme bearishness. Here the open is equal to the high and close is equal to low. Open = High, and Close = Low.
A bearish marubozu indicates that there is so much selling pressure in the stock that the market participants actually sold at every price point during the trading session, hence stock closed near its low point. It does not matter what the prior trend has been, the action on the marubozu day suggests that the sentiment has changed and the stock is now bearish.
Entry and Stop Loss on Bearish Marubozu
The trade on the bearish marubozu would be to short once low breaks with a stop loss at the high point of the candle.
Remember this: Once a trade is initiated, you should hold on to it until either the target is hit or the stop loss is breached.
Hope you have learned some more candlestick patterns from this blog. if you have any questions do write in comment. I would be glad to answer them. See you soon…