In order to identify each different candlestick trading pattern as well as what that pattern indicates is occurring in the markets, you need to be able to identify two important patterns: closing and opening marubozu patterns in candlestick charting.
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.
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.
To learn more from Stephen, be sure to sign-up for his free 12 Signals To Master Any Market pdf ebook.