Trading with the  Marabuzo Line

Technical Analysis_Japanese_Candlesticks.png

What is a Marabuzo line?

Before we can see the relevance of the Line we have to look at what a Marabuzo actually is. The term is applied to the real body of a candlestick that is larger than the norm. That is a fairly nebulous concept and there is no hard and fast rule that can be applied here. An evaluation of the chart being studied and the time period being used will determine the relevant numbers. Even that result will have to be reappraised to reflect different market conditions. Sideways, trendless trading will create less sizeable movements, therefore a relevant Marabuzo will, naturally, be of a smaller size than in volatile markets where all candlesticks are larger. Let us be clear; this style of analysis, like all Technical Analysis, is not a science but a reasoned application of principle.

Once a Marabuzo has been determined then the Marabuzo line can be drawn from the mid-point of the body; in other words halfway between the open and the close. In other words, a 50% retracement. As a candlestick chart is only a bar chart with the open and close filled in, the Marabuzo line could be drawn using a bar chart just as well, but for graphic purposes it is clearer when applied to candlestick charts. One of the first things learnt when beginning technical analysis is the importance of retracements points and whether the preference if for Fibonacci or Gann percentages, 50% is the most important of these levels. The major difference here is that the 50%retracement is applied not to the high and low of a movement but to the open and close of a time period - to a practioner of candle charts, the key features. A horizontal line is drawn between the two and is extended to the right (into the future) where it will act as a support or resistance point.

Technical analysis Marabuzo Line.png

As mentioned at the beginning of this article a 50% line such as this is not drawn on every candlestick body but is used only on those judged to be greater than the norm. While it is a subjective measurement, I have found using an open/close difference roughly 50% greater than the average produces the best results. For example; EURUSD gave an average open/close difference of 84-pips during May. Therefore a difference of 122 or greater would have been of immediate interest. It is important though to keep a rough eye on changing market conditions to make alterations to these numbers. One thing will become obvious while looking at the following examples and by trying these concepts out in practice yourself; the larger the Marabuzo, the greater the importance that the resultant 50% level is likely to have on subsequent movements.

How to use the 50% Marabuzo Line

The primary use of this line is as a support or resistance line. Picture a downward Marabuzo; the close 100 pips lower than the open. The Marabuzo line will be drawn 50 points below the open (50- points above the close). The high and the low are not irrelevant as they may help to form a recognisable candle pattern but their importance is secondary. As it is likely that the next period’s open will be close to the previous close, the Marabuzo line is likely to act as initial resistance. Like all such lines it is only potential resistance. That resistance has to be tested and proved. Once that is done the line is likely to show continued importance. The same principle is applied to supports. A key point is that the support/resistance is applicable to the close of the period being used, not necessarily during the period. In other words trading during the subsequent period(s) can exceed the line but the line is not considered broken until the close of the period ( whether it be hourly, daily or even monthly).