As the name suggests this pattern is formed by just one candle. It indicates a day’s trading action. The trade based on a single candlestick pattern can be lucrative subjected to the correct identification and execution of the pattern. The length of the candle signifies the range for the day. The longer the candle the more intense is the buying and selling activity. Trading should be based on the length of the candle. Wherein, trading should be avoided on short candles.
Understanding Single Candlestick pattern
Marubozu is one of the candlestick patterns. In Japanese language Marubozu means bald. There are two types of Marubozu namely, the bullish Marubozu (blue or green in color) and bearish Marubozu (red in color). Technically, Marubozu is a candlestick with no upper and lower shadow therefore appearing bald. It has only the real body.
This is formed when the open is equal to low and high is equal to close. A bullish Marubozu indicates buying interest in the stock. The market participants would be willing to buy the stock at every price point during the day, so much so that the stock closes near its high point for the day. It is not influenced by the prior trend and the stock is bullish currently. Bullish Marubozu calls for a buy. The buy price should be around the closing price of Marubozu.
In a Marubozu pattern open = low and high=close. Let us understand this with the help of an example of a stock X.
The OHLC data for the candle is
open = 970
high = 1030
low = 970
close = 1028
Here we can buy the stock at a price of 1,028 and maintain a stop loss of 970. A trader whose risk appetite is high would buy the stock on the same day when Marubozo is being formed. A trader with a low risk appetite would buy the stock on the next day subjected to the market being bullish.
Candlestick patterns come with inbuilt risk management mechanism. In case of bullish Marubozu the low of the stock acts as a stop loss. Suppose, we buy a stock and markets begin to move in opposite direction one should exit the stock.
Booking a loss is also a part of the game. Even a seasoned professional trader goes through this. However, the advantage of following a candlestick pattern is that the losses are limited. (The author is a homemaker who dabbles in stock market investments in free time)