The Marubozu candlestick is a lesser-known pattern among crypto traders, as it’s rare to find it on trading charts. However, Marubozu formations are easy to identify once you know what to look for. Once the Marubozu pattern is spotted, you can determine how effective its signal may be based on the pattern’s location within a larger trend.
While not occurring frequently, Marubozu patterns can be found on any chart time frame for any cryptocurrency. In this article, we’ll discuss what the Marubozu candlestick pattern looks like, and how to trade it once you’ve spotted it.
We’ll also review other indicators you can use to confirm a Marubozu pattern, and what limitations exist for trading it.
What Is the Marubozu Candlestick Pattern?
A one-candle pattern, the Marubozu candles look like a rectangular block because it has no wicks (or upper and lower shadows). It is a technical indicator used to predict the future direction of an asset’s price.
The pattern can be colored either red (bearish) or green (bullish, sometimes colored black). Candlestick patterns and interpretations originated in Japan in the 18th century. Marubozu is a Japanese word meaning “bald” or “shaved head” — which makes sense, as the pattern is missing a wick to the topside.
The Marubozu pattern is simple and straightforward, though many experienced traders may not have heard of it. Its lack of popularity among traders may have more to do with its rarity than its actual utility.
The message behind the Marubozu pattern is simple: prices which trade strongly in one direction can often lead to a continuation and follow-through.
There are three different places within a larger trend where the Marubozu pattern may form:
- At the beginning or kickoff of a new trend
- During the middle of a trend
- As a blow-off to a mature trend about to reverse
Marubozu at the Kickoff of a New Trend
There are times when a trend reverses slowly in an almost stealth-like manner. At such times, an important news announcement may add fuel to the new trend as prices move strongly in one direction. In a case like this, a Marubozu candlestick pattern may be found early in the new trend.
Marubozu Pattern in the Middle of a Trend
In technical analysis, as a trend reverses, a battle may be waged in which the followers of the old trend are still hopeful it will continue. At the same time, traders who believe a new trend has started cast their vote via their trades. Initially, there’s a struggle, and then a flashpoint appears when the new trend breaks out.
During this breakout, the old trend’s followers have relinquished control. Everyone is on board with the new trend. Because the supply of buyers and sellers is lopsided, the trend takes off with strength. Marubozu candle patterns are frequently found during the middle of market trends.
A Blow-off Top may House a Marubozu Pattern
A blow-off top is the end of a mature rally, with price appreciation accelerating in a last gasp of fear of missing out (FOMO).
By the end of the trend, the whales have exited, and the market reverses course shortly thereafter.
What Does a Marubozu Candle Pattern Look Like?
A Japanese candlestick generally has two portions to its formation: the body and the wicks, also called shadows.
The body is the colored portion of the candlestick. Most charting packages use red or green coloring, though sometimes blue/red and black/white are other popular combinations.
Protruding from either end of the body is a small stick called the wick or shadow.
What makes the Marubozu formation unique is that it’s missing shadows, or wicks. This gives the pattern a big rectangular block look.
The color of the Marubozu is the sole differentiator between bullish and bearish.
Identifying the Marubozu Candlestick Pattern
The Marubozu pattern indicates that a cryptocurrency has been trading strongly in one direction, as it opens at one extreme and then closes at the other. Prices have not traded outside of the opening and closing price extremes, implying that a strong directional trade has been taking place.
To distinguish a bullish Marubozu pattern from a bearish one, simply consider the color of the candlestick’s body.
Bullish Marubozu Pattern
The bullish Marubozu candles pattern implies that the price opened at the lowest point and closed at the highest point. This happened because buyers were in control of the price for the duration of the candle’s construction.
The color of a bullish Marubozu will be green, blue or white.
Bearish Marubozu Pattern
The bearish Marubozu pattern, formed when prices open at the high price for the candle’s formation and close at the lowest point. In essence, the open is the same price as the high, and the close is the same price as the low.
The color of the bearish Marubozu candlestick will be either red or black.
Using the Marubozu Candle to Trade Crypto
As mentioned, although Marubozu candle formations can be found on any time frame chart, they are fairly rare. When they do appear, the one-candle formation with no wicks suggests strength in the current trend. The pattern signals it could be either a strong uptrend, or a strong downtrend.
How to Trade the Bullish Marubozu
The bullish Marubozu forms when the price trades swiftly to the upside. The candle’s open forms the low price, and the Marubozu closes the candle at the high price.
Once you spot the Marubozu pattern, consider the part of the larger trend in which it has formed.
In the 2-hour Bitcoin chart above, the bullish Marubozu appears right after another strong bullish candlestick, which loosely resembles a bullish Marubozu. This double combination appears toward the beginning of a new trend, which suggests that the trend is just starting.
You’ll rarely see an isolated Marubozu running against the main trend all by itself. So when the bullish Marubozu appears, the trader can expect more upside potential.
As a result, opening the trade on the next candle — while placing a stop loss just below the swing low — is one way to trade the bullish Marubozu.
How to Trade the Bearish Marubozu
The bearish Marubozu is created when the candle opens near the high opening price and closes on the low. This candle suggests a strong downward trend has been in force, leaving behind a big red or black candle with no wicks.
Shortly after Bitcoin topped in April 2021, the cryptocurrency market began to correct lower.
On April 15, the Ethereum 1-hour chart above carves a bearish Marubozu candle pattern, suggesting a strong downtrend (bearish trend). When we look at the price action unfolding prior to this candle pattern, we can see that the market is already correcting lower.
As a result, the bearish Marubozu appears in the middle of the trend, when the bulls are giving up and market participants are turning bearish.
When the bearish Marubozu appears toward the beginning or middle of a trend, the best way to trade it is by opening on the next candle and placing a stop loss just beyond the recent swing high.
With the benefit of hindsight, we can see how this bearish Marubozu is just a small piece of the larger bear trend that unfolded around June.
Indicators to Confirm the Marubozu Candlestick Pattern
When analyzing Japanese candlestick patterns, it’s best to view them within the context of larger trends, rather than in isolation.
Going back to the 2-hour Bitcoin example above, the price bounces higher off of the 200-period simple moving average on the chart. This bullish bounce from an important support level indicates the bull trend is still in force.
Sure enough, as the bullish Marubozu candle pattern develops, the price action is breaking above a shorter-term resistance trend line. Multiple pieces of confirmation exist between the bullish bounce at support and the bullish breakout above resistance. These are signs of the larger bull rally that may carry significantly higher.
It’s rare for the Marubozu candle formation to develop right at levels of support or resistance because Marubozu tends to be a continuation pattern. Therefore, look for prices that have recently bounced higher from support to carve a bullish Marubozu, or fall from resistance and then form a bearish Marubozu.
Is the Marubozu Signal Accurate?
One thing that’s clear when a Marubozu candle pattern is spotted is that a strong trend has powered prices to the high or low extreme of the time period. Generally, this type of price action implies the continuation of a trend.
However, this price action is backward-looking, and the location of the Marubozu within the larger trend is critical to its potential rewards. For example, if the Marubozu appears toward the end of the trend in a blow-off, it actually sets the stage for a trend reversal, not a continuation.
If the Marubozu appears in the middle of the trend, a trading opportunity does exist. However, that opportunity will not be as rewarding as if the Marubozu had appeared at the beginning of a new trend.
So, the location of the Marubozu within the context of the larger trend is important for generating positive signals. Stay away from Marubozu formations toward the end of mature trends — unless you’re on the watch for the appearance of a reversal.
Marubozu vs. Engulfing Pattern: The Differences
The Marubozu candle pattern looks similar to the engulfing pattern. For example, both patterns typically have big and tall candles involved in their creation.
However, there are a couple of important differences to help you distinguish between the two formations.
First, the Marubozu is a one-candle formation, whereas the engulfing is a two-candle formation. Is it possible for the second candle of the bullish engulfing to be a bullish Marubozu within the crypto market? In theory, it is possible. Practically speaking, though, it’s not likely.
The bullish engulfing pattern is useful because it gaps to a new low, thereby creating a body that engulfs that of the previous candlestick. In theory, this could happen in crypto, but it would be extremely rare. This is because crypto trades 24 hours per day, 7 days a week. Continuous trading is taking place, which means continuous pricing.
For crypto to gap, there needs to be an event that creates confusion in the market, such as an important news story which causes liquidity to be pulled. In essence, the main liquidity providers would become concerned or confused, pulling back their offerings. This type of scenario would need to occur when an old candle has closed and a new candle is opening. As a result, this is an extremely rare occurrence.
Additionally, the engulfing candle is a reversal pattern. The Marubozu tends to be a continuation pattern, unless it appears at the end of a trend.
Therefore, in theory, it’s possible that the Marubozu could be the second candle of an engulfing pattern. However, this is highly unlikely.
The Bottom Line
The Marubozu candlestick pattern is generally great to assess the market sentiments as it signals a continuation of a current trend. When this pattern is spotted on a crypto chart, especially if it’s early within a new trend, the buying pressure pushes the cryptocurrency’s price, thus continuing to trade higher.
If the Marubozu is spotted toward the end of a mature trend, then beware: it could signal a reversal lurking nearby. Though the Marubozu formation is easy to identify, its usefulness is contingent upon analyzing its location within a larger trend. While this technical indicator can provide analytical insights about the future direction of a price, trading cryptocurrencies require you to be vigilant about the broad perspective of the market. The use of fundamental analysis with a combination of other technical indicators is highly recommended.