Marubozu Candlestick Setting Stop Loss The Ultimate Guide to Trading Patterns

  1. Technical Analysis
    1. How Technical Analysis Can Help You Make Informed Decisions in Mastering Stock Trading
    2. Technical Analysis Setting Realistic Expectations
    3. Introduction to Technical Analysis and Assumptions
    4. Technical analysis for Profitable Trades Analyzing Open, High, Low, and Close
    5. Candlestick Charts How Line and Bar chart Enhance Market Analysis
    6. Japanese Candlesticks History, Anatomy From Ancient Japan to Global Trading Phenomenon
    7. Time Frames in Technical Analysis Unlocking the Power of Choosing the Right Interval for Successful Trading strategy
    8. Candlestick Patterns How to Identify and Interpret Trading Signals
    9. Marubozu and Bullish Marubozu Understanding What is Essential Single Candlestick Patterns for Traders
    10. Marubozu Candlestick Setting Stop Loss The Ultimate Guide to Trading Patterns
    11. Spinning Top Candlestick Navigating Downtrends A Trader’s Guide to Identifying Reversal Signals
    12. Spinning Top and Doji How to Interpret and Navigating Market Uncertainty
    13. Paper umbrella and hammer candlestick pattern Unlock Profitable Trades
    14. Hanging man candlestick pattern Profitable share market trading Strategies
    15. Shooting Star Candlestick Pattern Boost Your Trading Success Guide
    16. Engulfing Patterns and Bullish Engulfing Signals Unlock Trading Opportunities
    17. Bearish Engulfing and Doji for Trading Success Profitable Strategies with Candlestick Patterns
    18. Multiple Candlestick Patterns Insights and Strategies Boost Your Trading
    19. Bullish Harami Candlestick Pattern for Trend Reversal Strategies
    20. Shorting Guide using the Bearish Harami Pattern Trade Reversals with Confidence
    21. Morning Star Candlestick Pattern and Gap Analysis To Maximise Your Profits
    22. Evening Star Candlestick Pattern Learn How to Identify and Trade to Boost Your Trading Success
    23. Support and Resistance Basics A Comprehensive Guide to Setting Targets and Navigate the Markets with Confidence
    24. Support and Resistance Learn How to Draw and Identify Key Levels Unlocking Trading Opportunities
    25. Support and Resistance Advanced Trading Strategy Analysing Reliability and Optimisation
    26. Volume Trends How to Leverage for Successful Trading Strategy
    27. Volume Analysis A Key Checklist for Successful Stock Trading
    28. Moving Averages A Comprehensive Guide for Trend Analysis in Stock Trading
    29. How to Use Moving Averages for Profitable Trading Strategy and Potential Opportunities
    30. Moving Average Crossover Boost Your Trading Success with A Reliable Strategy
    31. Technical indicators How to Use Technical Tools for Better Decision-Making Unlocking the Power of Trading
    32. Relative Strength Index RSI Analysing Overbought and Oversold Signals to Boost Your Trading Strategy
    33. MACD How to Interpret and Utilize Moving Average Convergence and Divergence for Profitable Trading
    34. Bollinger Bands The Power of Indicators in Trading and checklist
    35. Fibonacci Retracements Unravelling the Power in Stock Markets
    36. Mastering Fibonacci Retracement A Step-by-Step Guide for Effective Trading
    37. Dow Theory Decoding Unveiling the Principles of Technical Analysis
    38. Dow Theory Patterns Unlocking Trading Opportunities with Double and Triple Formations
    39. Trading Range Explained chart indicator example strategy Profit from Market Ranges
    40. Flag Pattern and Range Breakout How to Capitalise Trading Beyond Boundaries
    41. Risk reward ratio Understanding RRR in Dow Theory
    42. Technical Analysis Tools for Traders Charting Software Guide Enhance Your Trading
    43. How to Select Stocks for Trading Success and Building Your Opportunity Universe
    44. Short Term Trading Unleashing the Power of Scalping Strategies
    45. ADX Indicator and 7 more indicator tools for Trend Strength Analysis
Marketopedia / Technical Analysis / Marubozu Candlestick Setting Stop Loss The Ultimate Guide to Trading Patterns

The Stop loss on Bullish Marubozu

In case you find yourself in a situation where the markets have reversed after you purchased the stock, bear in mind that candlestick patterns come with an inherent risk management system. 

As mentioned previously, for bullish marubozu formations, the low of the stock serves as a stop loss. Thus, if the price breaches this level, it is best to exit your position.

This is an instance where the bullish marubozu could be considered a positive signal both for conservative and aggressive investors. The OHLC is : O = 960.2, H = 988.6, L = 959.85, C = 988.5.

But the pattern eventually disappointed and resulted in loss. Consequently, the stoploss for this trade was 959.85 – the low of the marubozu.

Booking a loss may be part of the trade, even for an experienced trader. The advantage of candlestick trading is that losses aren’t permanent; there is an idea of when to step out of the trade if it starts to take a turn. 

In this case, taking a loss was the best move to make before the stock decreased in value further.

Certainly, there may be times when the stop loss activates and you exit the trade. It is possible that the stock could move in an upward trend afterwards. This is a part of trading and there’s not much that can be done. 

The key here is to always stay disciplined and follow the rules, no matter what.

Bearish Marubozu

The Bearish Marubozu reflects utmost bearishness; opening and closing prices are identical, with the open matching the high and low being equal to the close.

A bearish marubozu reveals the presence of considerable selling pressure in the stock, visible in its close near the day’s low point. Despite any prior trends, this action shows that sentiment has shifted and the stock is now bearish.

It is expected that this abrupt shift in sentiment will continue over the upcoming trading periods, presenting an opportunity to short. The selling price should be about the closing price of the marubozu.

This chart of BPCL Limited includes an encircled candle depicting a bearish marubozu. It is lacking both an upper and lower shadow, and the OHLC data for it is as follows:

The opening price was 355.4, the highest point it reached was 356.0, the lowest being 341, and the final value for the day was 341.7.

We discussed minor variations in the Open, High, Low and Close figures that lead to small upper and lower shadows, and agreed these were ok as long as within an acceptable limit.

A trade on the bearish marubozu would involve shorting BPCL at 341.7, with a stop loss at 356.0. We’ll discuss setting targets for this later in the module.

It is imperative to stay the course once a trade is initiated, seeing it through until either the target or stop loss kicks in. If you attempt something else first, your trade will likely fail. Therefore, it’s essential to follow the plan.

Based on their attitude to risk, traders can initiate a short position on the same day near the end of trading. To make sure it is valid, they should check that a bearish marubozu pattern has formed. 

This means confirming the open price is around the same as the high, and the current market price is roughly equal to the low. If so, then a short position can be taken.

For the risk-averse trader, the short trade should only go ahead the following day, once it can be confirmed that it is a red candle day. This ensures compliance with the initial principle: buying strength and selling weakness. The trade must be executed by 3:20 PM at the latest.

This chart depicts a bearish marubozu pattern, which would not have been a profitable investment for the risk-taker. A precautionary approach, however, may have saved the risk-averse trader from entering the trade due to rule 1.

The Trade Trap

In this chapter, the length of the candle was addressed. To optimise trading performance, one should steer clear of dealing in a narrow (below 1% range) or long candle (above 10% range).

A candle of small size is an indication of muted trading activity, thus it can be difficult to pinpoint the direction of the market. However, a long candle signals excessive action. The difficulty with these extended candles is determining where to set up the stop loss. 

If placed too high, in case the trade does not go as expected, there could be severe penalties to bear, and thus trading on either particularly brief or lengthy candles should be avoided altogether.