Trading with Marabuzo Candles | FXTRADING.com - International

Trading with Marabuzo Candles

Admin, November 5th, 2020

Whilst a Marabuzo candle provide clues of trend continuation or trend reversal, the Marabuzo line projects future levels of support and resistance.

Depending on which form of English is used, they can be spelled as “Marabuzo” or “Marabozo”, but ultimately they refer to the same pattern. In some ways, a Marabuzo candle is similar to an engulfing candle or outside bar. Yet what sets it apart is that a Marabuzo candle must be notably large relative to prior candles, and it has no upper or lower wick. And it is the lack of candle wick (or shadow) where its name is derived from, as “Marabuzo” is a Japanese word which means “shaven head”.

Sometimes the candle will also be an engulfing or outside candle, but it is not a requirement. But what should really stand out is that the height of the candle is far beyond its typical range, which is not always the case with an engulfing or outside candle.

The main uses of a Marabuzo candle includes

  1. Provide future support and resistance
  2. Confirm trend reversal
  3. Define trend strength

Full Marabuzo

A full Marabuzo candle has no upper or lower wick. Therefore, a bullish Marabuzo candle will open at the low and close at the high of the candle. Whereas a bearish Marabuzo candle will open at the high and close at the low of the candle.

As they effectively open and close at the extreme of the bar, they are seen to be the most powerful of the Marabuzo candles because the market effectively traded in one direction for the entire bar.  It also means they are rarer to come by and, depending on the market, its quite likely there will be a price gap either side of such a candle.

 

Opening Marabuzo

An Opening Marabuzo has no wick (a shaven head) at the open, so a bullish candle will open at the low and a bearish candle will open at the high of the bar. This also means there can be a small upper wick on a bullish candle and a small lower wick on a bearish candle.  As these are still large candles they are still powerful signals, and more likely to appear than Full Marabuzo candles.

 

Closing Marabuzo

A Closing Marabuzo will close at the high of a bullish candle, or the low a bearish candle. This means there can be a small lower wick on a bullish candle and a small upper wick on a bearish candle.

 

Marabuzo Line

The Marabuzo line provides future support and resistance levels. Traditionally, it is simply a 50% retracement between the body of the candle (open and close) but, as the wicks are supposed to be small anyway, the full length of the candle can also be measured.

The Marabuzo line projects support or resistance under the following scenarios:

  • Bullish Marabuzo candles project support levels
  • Bearish Marabuzo candles projects resistance levels

This is the case, regardless as to whether the candles appear as part of a trend reversal or trend continuation signal. They are not an exact science, but how far prices retrace towards the Marabuzo line can provide an indication to how strong underlying momentum is.

For example, if the market barely looks back or makes no effort to retrace it is clearly a strong move, and traders could consider reverting to lower timeframes to trade continuation patterns. However, if the market retraces quite quickly towards (or around) the 50% Marabuzo line, a trader could consider using a swing trading approach.

Noise can be expected around the Marabuzo line. Quite often, if a market has retraced around 50%, the candles will show wicks which penetrate the Marabuzo line. Yet if the market does not close too far beyond it, then it suggests a new level of support or resistance is forming.

Furthermore, time is not a factor with the Marabuzo line. Markets may retrace relatively quickly before respecting the Marabuzo line, and then continuing in the direction of the trend. Or it may take hours, days or even weeks for the market to re-test this key level.

But ultimately, if the market makes a clear break beyond the Marabuzo line, then it has failed as a level of support or resistance. And, of course, if the market trades beyond the Marabuzo candle itself, it has failed as a trend reversal or trend continuation signal.

 

Trading with Marabuzo Candles and the Marabuzo Line

In this example, Gold produced two Marabuzo candles in quick succession.

  1. A bearish Closing Marabuzo confirmed a trend reversal by closing beneath a prior swing low. However, the volatility of the candle could have been used to make the same assumption, even if the swing low had not been breached.
  2. An Opening Marabuzo candle confirmed trend continuation as it appeared after a trend reversal. Interestingly, this Marabuzo candle was part of a breakout from a bearish flag formation, which could have provided a tradable continuation pattern before the Marabuzo candle was confirmed. The fact it opened at the high of the day and fell sharply lower also underscored the strength of the breakout.

 

  1. A bearish Opening Marabuzo formed to suggest trend continuation. That it closed beneath a prior swing low also confirmed the strength of the candle.
  2. A 50% measurement of the candle’s body projected the Marabuzo line. As the candle is bearish we are hoping for it to provide resistance in future.
  3. After initially moving lower, prices retraced towards the Marabuzo line. Whilst there were two spikes beyond the level, both candles closed beneath it and formed bearish hammers to present a potential swing trading opportunity.

 

  1. In this example, a bearish Opening Marabuzo candle formed during a downtrend to signal trend continuation (and underscore the strength of the trend).
  2. A 50% Marabuzo line projected potential resistance, although we can see that prices initially meandered around it to warn that the S/R level has failed. At this stage, it is up to the trader to decide if they should remove the Marabuzo line. However, if we looked at a closing price chart, we could note that that the open and close prices did respect the Marabuzo line before prices eventually turned lower.
  3. After retracing against the trend, two bearish hammers formed around the 50% retracement level. Whilst two upper wicks penetrated the resistance level, both candles closed beneath it before prices retested recent cycle lows.

 

  1. An Opening Bullish Marabuzo formed just off the lows of a downtrend to suggest a bullish trend reversal.
  2. Due to the wider upper wick, a Marabuzo zone was drawn by using the 50% retracement of the Marabuzo body and entire candle range. This created a potential support zone.
  3. Over the next few days, prices repeatedly retraced towards the support zone yet failed to close beyond it. In fact, there was only one candle (26th August) that penetrated the lower Marabuzo line, yet all attempts to break beneath the zone closed above it.

On a sidenote, the fact that prices repeatedly tested the support zone without starting a sustained uptrend undermine the original trend reversal signal of the Marabuzo candle. However, it still could have provided tradable opportunities for bulls if they were seeking to enter long with a rejection of the support Zone.

 

Summary on Marabuzo Candles:

  • Marabuzo candles have no upper or lower wick. A full Marabuzo candle has no wick at all and is seen as the most potent form of Marabuzo.
  • Marabuzo candles show a clear dominant force from bulls or bears, as the market has effectively traded in one direction for the entire bar.
  • They need to be relatively large (elongated) relative to recent candles or typical bar range (basically, they need to stand out).
  • Marabuzo candles can be used to confirm a trend reversal and trend continuation.
  • A Marabuzo line is the 50% retracement between the body (open to close) of the Marabuzo candle, although the candle range can also be used.
  • The Marabuzo line projects future support and resistance levels.
  • A Marabuzo line on a bullish candle projects support, whilst a Marabuzo line on a bearish candle projects resistance.

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