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What is a Marubozu Candlestick?

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What is a Marubozu Candlestick?

A marubozu candlestick is a type of candlestick pattern in forex trading that indicates strong market momentum and control by either buyers or sellers. It is a candlestick with a long body and no or very little shadow (wick) at either the top or the bottom, showing that the price moved significantly in one direction during the trading session, with little to no opposition. The marubozu candlestick can appear in both bullish and bearish forms, each providing important insights into market sentiment.

Understanding the Marubozu Candlestick

A marubozu candlestick has the following characteristics:

  1. Long body: The body of the candlestick is long, indicating that the difference between the opening and closing price is significant, showing strong momentum.
  2. No or very little shadow: There is little or no shadow at the top or bottom of the candle. A candlestick with no shadow is called a “full marubozu,” while one with a small shadow at one end is called a “half marubozu.”
  3. Bullish or bearish:
    • Bullish marubozu: The candlestick opens at the low of the session and closes at the high, showing that the buyers controlled the market throughout the session.
    • Bearish marubozu: The candlestick opens at the high of the session and closes at the low, showing that the sellers controlled the market.

Key Features of the Marubozu Candlestick

  • Bullish Marubozu: A long green or white candlestick with no upper or lower shadow. The price opens at the lowest point and closes at the highest, showing strong buying pressure throughout the session.
  • Bearish Marubozu: A long red or black candlestick with no upper or lower shadow. The price opens at the highest point and closes at the lowest, indicating that the selling pressure dominated the session.
  • Strong market sentiment: Both types of marubozu candlesticks indicate strong sentiment—bullish or bearish—indicating a trend that may continue in the same direction.

While the marubozu candlestick is a powerful indicator of market momentum, it has its challenges:

  • False signals: In some cases, a marubozu candlestick may appear in range-bound or consolidating markets, leading to false signals or a reversal in the opposite direction.
  • Context is important: The significance of a marubozu candlestick depends on where it appears in the price chart. For example, a bullish marubozu during an uptrend is more likely to continue the upward momentum, while one at the top of an uptrend may signal a reversal.
  • Confirmation needed: It’s important to wait for confirmation after a marubozu candlestick. For example, if you spot a bullish marubozu, wait for the next candle to confirm that the uptrend is likely to continue before entering a trade.

Step-by-Step Solutions for Using the Marubozu Candlestick

To trade effectively with the marubozu candlestick, follow these steps:

  1. Identify the pattern: Look for a long candlestick with little to no shadow. Ensure that the body of the candlestick is much larger than the wicks, with the open and close near the extreme end of the candle.
  2. Check the trend: A bullish marubozu in an uptrend is more likely to signal continuation, while a bearish marubozu in a downtrend can confirm continued selling pressure. In contrast, a marubozu at a key support or resistance level may signal a potential reversal.
  3. Wait for confirmation: Don’t enter a trade based solely on the marubozu candlestick. Wait for confirmation in the form of the next candle or key price levels to ensure that the momentum is likely to continue.
  4. Consider volume: Volume can add strength to the marubozu candlestick. A high-volume marubozu candle suggests strong market participation and a greater likelihood of trend continuation.
  5. Place a stop-loss: To manage risk, place a stop-loss below the low of a bullish marubozu or above the high of a bearish marubozu, depending on the direction of the trade.
  6. Set profit targets: Use key support and resistance levels, trendlines, or a risk-reward ratio to set appropriate profit targets for your trade.

Practical and Actionable Advice

To maximise the effectiveness of marubozu candlesticks:

  • Look for marubozu candles at key levels: The pattern is more significant when it forms at important support or resistance levels or near trendlines, confirming that the momentum is strong enough to push the price in one direction.
  • Combine with other indicators: Use indicators like RSI or MACD to confirm the strength of the momentum. A bullish marubozu with an RSI indicating oversold conditions suggests strong buying pressure, while a bearish marubozu with an overbought RSI confirms the selling pressure.
  • Wait for the next candle: Always wait for a follow-up candlestick to confirm the direction of the market. A bullish confirmation after a bullish marubozu suggests continuation, while a bearish follow-up candle after a bearish marubozu suggests further downside.

FAQs

What does a marubozu candlestick indicate in forex?

A marubozu candlestick indicates strong market momentum in one direction. A bullish marubozu shows that buyers were in control throughout the session, while a bearish marubozu shows that sellers dominated the market.

How do I identify a marubozu candlestick?

A marubozu candlestick has a long body with little or no shadow at the top or bottom. It is a single candlestick where the price opens at one extreme (high or low) and closes at the other extreme (low or high).

Is the marubozu candlestick reliable?

The marubozu candlestick is a reliable signal of strong momentum when it appears in the context of an established trend. However, it should be confirmed with other indicators or price action to reduce the risk of false signals.

How long does the marubozu candlestick take to form?

The marubozu candlestick forms within a single trading session, whether on a 1-hour, 4-hour, or daily chart, depending on the timeframe being used.

How do I trade with a marubozu candlestick?

Enter a buy trade after a bullish marubozu and a sell trade after a bearish marubozu, but wait for confirmation from the next candle or other indicators. Place a stop-loss to protect your position, and set profit targets based on key levels.

Can the marubozu candlestick appear in a downtrend?

Yes, a bearish marubozu can appear in a downtrend, indicating that sellers are continuing to push the price lower. A bullish marubozu in a downtrend may signal a potential reversal.

Should I always wait for confirmation after a marubozu candlestick?

Yes, it’s important to wait for confirmation, such as a follow-up candlestick or confirmation from indicators, before entering a trade.

How do I combine the marubozu candlestick with other indicators?

Combine the marubozu pattern with momentum indicators like RSI or MACD to confirm that the market is moving in the direction suggested by the candlestick. This strengthens the signal and increases the chances of a successful trade.

Is volume important when trading the marubozu candlestick?

Yes, higher volume on a marubozu candlestick strengthens the signal, indicating that the price movement is supported by active participation from traders.

Can the marubozu candlestick work on all timeframes?

Yes, the marubozu candlestick can appear on any timeframe, but it is generally more reliable on longer timeframes like the 4-hour or daily charts.

Conclusion

The marubozu candlestick is a powerful indicator of strong market momentum in one direction. By identifying marubozu candlesticks at key support or resistance levels and confirming with other indicators, traders can make informed decisions about entering trades in the direction of the prevailing trend. Always ensure sound risk management to protect your positions.

Learn more about candlestick patterns and trading strategies at Traders MBA.

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