Archives for September 2013

This article explains the closing and opening marubozu patterns used in candlestick charting.

Closing Marubozu

A closing marubozu has no shadow at its closing end. A white body will not have a shadow at the top. A black body will not have a shadow at the bottom. In both cases, these are strong signals corresponding to the direction that they each represent and are used in stock analysis.

A white body that has a lower shadow but no upper shadow is called a bullish white closing marubozu. When the days opens the prices go down but then begin to go up all day where it then closes at the day’s high.

The bearish black closing marubozu has an upper shadow but no lower shadow. Prices go up when the day opens and then they move down all day and close at the low of the day. This signal indicates a day of the bears and could show either a final sell off before the bulls come back into control, or the continuation of a downtrend.

Opening Marubozu

The opening marubozu has no shadows extending from the open price end of the body. A white body would not have a shadow at the bottom end and the black candle would not have a shadow at its top end. Though these are strong signals, they are not as strong as the Closing Marubozu.

The bullish white opening marubozu has an upper shadow but does not have a lower shadow and when the day opens, the prices go up all day. The price then closes higher than the opening price however it does not close higher than the day’s high.

The bearish black opening marubozu indicates a bearish day that concerns the bulls. With this candlestick pattern, the day opens with prices going below the opening price. Then the price goes down all day with a final closing price that is lower than the opening price. The final closing price is not at the low of the day however.

One of the biggest misconceptions of investors is that prices move based upon fundamental reasons when in fact prices move based upon the “perception” of fundamental reasons. The Japanese Rice traders discovered this many centuries ago. Why do prices go down when good news is announced? The answer is that the anticipation of that good news was already built into the stock price.

Please continue to learn how to identify each different candlestick trading pattern as well as what that pattern indicates is occurring in the markets.

When studying Japanese Candlesticks it is important to know about the black marubozu. The black marubozu is a long black body with no shadows at either end. It is considered a weak indicator. It is often identified in a bearish continuation or bullish reversal pattern, especially if it occurs during a downtrend. A long black candle could represent the final sell off, making it an “alert” to a bullish reversal setting up. The Japanese often call it the Major Yin or Marubozu of Yin. Ideally you would not want to have any small wicks on either end of the black candlestick but it is possible and would signify that the open and the close were close to the high and low price of the day.

Some who study Japanese Candlesticks also refer to the black marubozu as the bearish long black candle and it is the opposite of the bullish white marubozu candlestick pattern. Again, this long black candle signifies that a bearish trend is occurring and the sellers are in control in which the sellers end the day selling pretty low. So basically, Japanese candlesticks tells us that, if the price opens at the high of the day and it closes at the low of the day, then the outcome is the black marubozu. In order to confirm that this signal is valid, you need to watch it over the next few days.

The psychology built into a major Japanese candlesticks signals is simple common sense investment philosophy. When you learn how to utilize the candlestick charts correctly you now have the knowledge to improve your trading techniques for those trading entities you want to trade. You do not have to depend on canned programs that sometimes work and sometimes don’t work and you do not have to buy or sell stock recommendations blindly based on a research analyst’s recommendations. The candlestick signals provide guidance as to what investors are actually doing at a certain point in time. Learn the 12 major candlestick patterns as well as the secondary patterns and your investments perceptions will greatly improve.

Continue to learn about candlestick patterns and read about the Dark Cloud Cover, the hammer signal, the bearish engulfing, and others.