Candlesticks: Marubozu

In one of my previous post concerning investing, I made an introduction to Japanese Candlestick Charts. If you don’t know what values and how are represented on candlesticks, I strongly advice you to read that post.

If you are already familiarized with candlesticks, we can go on and today I will start a series of posts presenting candlesticks formations.

Marubozu is one of the most important Japanese candlesticks. This is single candlestick formation and we can distinct two types of Marubozu: white and black.

In general, Marubozu always has long body and doesn’t have shadows or shadows are very small. It means that white marubozu’s highest price (almost) equals closing price and lowest price (almost) equals opening price. Black marubozu’s opening price (almost) equals highest price and closing price (almost) equals closing price.

Color and length of the body tell us about the strength and relation between bulls and bears. If we get white marubozu, the bulls are in control; if black marubozu, then bears.

How can we use marubozu?

Marubozu as a signal of trend shift.

White marubozu on low price level very often is a signal to change the trend to upward direction. In such case white marubozu tells us that there is a price minimum and there is no resistance on the market to grow.

Black marubozu works analogically. On high price level, it signals change to downtrend. Bears start to take control and there is no resistance to go down.

S&P500. White marubozu starts uptrend.

Marubozu as a confirmation of support/resistance.

When white marubozu reflects from a support or a black marubozu reflects from a resistance, this is strong confirmation of that price level.

Microsoft. Two white marubozu’s confirm strong resistance - lower limit of upward channel.

Marubozu breaks support/resistance.

When white marubozu breaks resistance or black marubozu breaks support it is strong signal that the price would follow the direction of marubozu.

Apple. Black marubozu breaks support - 45 SMA

Marubozu as a support/resistance.

Middle of the marubozu’s body is very important price level. It is either support (white marubozu) or resistance (black marubozu).

Yahoo. Middle of black marubozu gives strong resistance.

Of course, keep in mind that examples described above don’t give you 100% guarantee of profit. They are very probable scenarios but you should always support yourself with other techniques of technical analysis. Even then, you don’t have 100% that you make a good pick.
Remember to use different methods and diversification. This way you can effectively minimize risk level and be a successful investor.