What is Black Marubozu?
It is a long black or red candle that indicates the strength of sellers during a trading session. It is a simple candlestick pattern. The longer the candle, the bigger the slump in price. The stock price opens at a day’s high and closes at a day’s low. If a black Marubozu appears at the end of a downtrend, it means the trend is likely to continue downwards. It signals that bears are aggressively selling and the momentum will continue downwards. If it appears at the end of an uptrend, it means a bearish trend reversal is expected. It is a signal that sentiment has changed and now sellers are trying to push the prices downwards.
How To Identify The Black Marubozu Candlestick Pattern
This pattern is relatively easy to spot compared to other candlestick patterns. The color of the candle is always red for a Black Marubozu. The opening price will be equal to the day’s high and the closing price will be equal to the day’s low. The candle will have a large body and there will be a huge gap between the opening and closing price. There is no wick on the upper and lower part of the body. The longer the body, the more bearish the signal because it indicates that the sellers are placing sell orders aggressively.
Variants of the Black Marubozu Candlestick Pattern
The Black Marubozu candlestick pattern may appear a little different on your charts.
There are three versions of the Black Marubozu:
- Full: No wicks at the top or bottom
- Open: No wicks at the top, but a small wick at the bottom
- Close: No wicks at the bottom, but a small wick at the top
How To Trade The Black Marubozu Candlestick Pattern
Looking at only a Marubozu candle alone is not enough. It is important to look at the overall pattern formed on the chart to get a better understanding. The formation of a black Marubozu candle does not necessarily mean that the stock will continue to fall. The bulls may take over the market the next day. Therefore, it is always best to confirm the suspicion by waiting for the candles that appear after the Marubozu. Other technical indicators such as volume, trend lines, etc. should be combined with this pattern to confirm the trade.
Strategies To Trade The Black Marubozu Candlestick Pattern
Strategy 1: Pullbacks On Naked Charts
As a bearish reversal pattern, the Black Marubozu is a great pattern to watch for when the price is on a downtrend. Just wait for a pullback to start, and then spot when the Black Marubozu appears. That often signs the end of the pullback and the start of the new leg to the downside.
Strategy 2: Trading The Black Marubozu With Resistance Levels
Support and resistance levels are great places to find price reversals. Since we are looking for moves to the downside, we want to trade the Black Marubozu using resistance levels.
How does it work?
- Draw resistance levels on your charts
- Wait for the price to go up and hit the resistance level
- Check if a Black Marubozu appears at that level
- Short when the price breaks the low of the Black Marubozu
- Set your stop loss and take profit levels, and expect a move to the downside
Strategy 3: Trading the Black Marubozu with Moving Averages
Moving averages are great trading indicators to trade trends.
The idea here is to trade pullbacks to the moving average when the price is on a downtrend.
How does it work?
- Find a downtrend, with the price jumping below a moving average
- Wait for the price to go up and hit the moving average
- Check if a Black Marubozu appears at the moving average
- Short when the price breaks the low of the Black Marubozu
- Set your stop loss and take profit levels, and expect another leg to the downside
Strategy 4: Trading the Black Marubozu With RSI Divergences
This is a bit different from the other trading strategies. To find a bearish RSI Divergence we want to see the price on an uptrend first, making higher highs and higher lows.
Here’s how it works:
- Find an uptrend
- Mark the highs that the price makes after each leg to the upside
- At the same time compare the price highs with the RSI indicator
- When you see the RSI making lower highs while the price making higher highs, you found your divergence
- Now you wait until a Black Marubozu appears at a price higher high, aligned with an RSI lower high.
- Short when the price breaks the low of the Black Marubozu
- Set your stop loss and take profit levels, and expect a move to the downside.
Strategy 5: Trading The Black Marubozu with Fibonacci
Another popular way of trading the Black Marubozu candlestick is using the Fibonacci retracement tool. Fibonacci shows retracement levels where the price will tend to revert frequently. Depending on the strength of the trend, different levels are more likely to work better with the Black Marubozu pattern. Here you can learn more about the different Fibonacci retracement levels.
Here’s how the strategy works:
- You want to see the price on a downtrend, or at the start of a new one
- Then you wait for a move to the upside, they always happen at some point
- Pick your Fibonacci tool and draw the levels from the high to the low of the move
- When the price hits a Fibonacci level and prints a Black Marubozu, that’s what you are waiting for
- Short when the price breaks the low of the Black Marubozu
- Set your stop loss and take profit levels, and expect a move to the downside
Strategy 6: Trading The Black Marubozu With Pivot Points
Pivot Points are automatic support and resistance levels calculated using math formulas. If you are day trading, the Daily Pivot Points are the most popular, although the Weekly and Monthly are frequently used too.
Here’s how to trade the Black Marubozu pattern with Pivot Points:
- Activate the Pivot Points indicator on your charts
- Check which Pivot Points are above the price, those will tend to work as a resistances
- Ideally, you want to see the price on a downtrend, although it’s not required
- Wait for a price move to the upside to a Pivot Point level
- At that level, you want to see a Black Marubozu pattern appearing, meaning that the level is being rejected
- Short when the price breaks the low of the Black Marubozu
- Set your stop loss and take profit levels, and expect a move to the downside
Conclusion
Marubozu candlestick patterns are definitely a very useful trading signal due to their simplicity. However, like every other trading tool, it has its own flaws. The ability to predict price movement is not completely accurate owing to different charts and time frames. Even an amateur trader can identify a candlestick pattern on a chart but what matters is how effectively it is used in the trading strategy.
