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  • Lester Davids

Same Candle: Different Position, Different Decision, Different Outcome

Updated: Apr 1

[This is an educational post]

Candlestick Formations form part of technical price charts, which are are used by market participants to interpret current demand-supply dynamics, potential price trends as well as form decisions from these inferences. A useful way to determine a candle's strength is via it's change from from the start of the first hour of the trading day to the end of the last hour of the trading day where, the greater (+) the percentage, the stronger the candle formation and the weaker (-) the percentage, the weaker the candle formation.

On one hand, candle formations help traders make decisions around momentum or trends or potential direction. On the other hand, the position of the same candle in different place on a price chart candle have different outcomes. In this example, a bearish Marubozu candle formation leads to both a buy and a sell.

  • Before we get to an example, what is a Marubozu?

  • Marubozu is a Japanese word for Dominance.

  • They have a long body, with now shadow or a very small shadow.

  • When a Green Marubozu is formed, it means that the share/instrument opened at a certain level and kept rising without falling down.

  • When a Red Marubozu is formed, it means that the share/instrument opened at a certain level and kept falling.

  • A Marubozu can be a part of a continuation pattern or part of a reversal pattern.

A recent example is NPN Naspers Ltd , where, on 13 February, after a strong short term advance, the share develop a bearish Marubozu candle, which can also be viewed as a bearish engulfing considering that it closed outside of the prior session. The development of this candle indicated that the upward momentum was being lost and that a bearish reversal was potentially underway. In this case, traders would look to short/sell to capitalize on the potential downward trend or price decline.

Follow the move lower, a bearish Marubozu was developed on both Monday 04 and Tuesday 05 March. This is the same candle as the one on 13 February however, it is in a different position i.e. following a downward trend. Here, the candle, as well as the short term trend rating (high bearish momentum) was indicative of a pending buy, provided the subsequent candle showed signs of a slowdown in bearish momentum. The following session (Wednesday 06 March) a 'doji' candle was developed, which signaled indecision and a possible bullish reversal.

Bottom Line: While the same candle structure was formed, a different decision (i.e buy vs sell) and a different outcome was noted (i.e. bearish reversal vs bullish reversal).

Update Monday 01 April 2024: I used the end of day data for Thursday, 07 March, adding it to the pre-market research note for Friday 08 March.

NPN Time-Stamped reading For End of Day Thursday 07 March 2024.

On a daily basis, Unum Capital publishes research which helps clients gain insights into key market developments and identifies opportunities to profit from various market conditions.

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Lester Davids

Analyst: Unum Capital

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