Japanese Candlestick Analysis
Unfortunately, a very large bar or candlestick does not always have the ex-
pected follow‐through action, that is, long white Marubozus are not always bull-
ish and long black Marubozus are not always bearish. See Figure 14.9.
One reason may be because the Marubozu candlestick is already relatively
overextended with respect to other candlesticks and with other similar Marubozus
of the same time period. One way to filter out overextended Marubozus is to do
a backtest to gauge the average height of a Marubozu associated with the average
maximum favorable excursion of all preceding Marubozus. Maximum favorable
excursion, in this case, would simply be the maximum amount of price excursion
beyond the high or low of a candlestick before price reverses back below or above
the candlestick, depending whether it is a bullish or bearish Marubozu. Such data
would give the trader a good idea of how overextended a Marubozu really is with
respect to historical action. If a Marubozu extends beyond this average height, the
trader should avoid initiating an entry. See Figure 14.10.- Color The color of the real body of a candlestick decreases in importance as the:
■ (^) Range of the candlestick decreases (Range = |H−L|)
■ (^) Range of the real body decreases (Real Body Range = |O−C|)
This is because smaller‐sized candlesticks have a lesser impact on subsequent
price action. This is why the color of the real bodies associated with spinning tops
and bottoms, shooting stars, hammers, inverted hammers, and hangman patterns
are of little significance.
But there are always a few exceptions to the rule! Harami and Tweezers Tops
and Bottoms are some examples where the color of the larger candlesticks is
figure 14.9 Marubozu Continuation Failure on the 15‐min EURUSD Chart.
Source: MetaTrader 4