Tuesday 25 March 2008

Doji Candlestick Pattern

Doji candlestick pattern with inside day and low volume today. Doji candlestick patterns indicate indecision and happen at turning points or trend continuation points. The Doji candlestick patterns are marked with "Dj" on the chart below.

Emini Doji Candlestick Image

Doji Candlestick Pattern (Emini daily)

Everything seems to be lining up for a down move:

  • Overbought oscillators with bearish divergence on Better TRIN
  • Hilbert sine wave cross approaching (confirmed with break of today's low)
  • Trend line break down out of consolidation on 81 minute chart
  • Low volume indicating lack of follow through demand
  • Rally in US Dollar versus Japanese Yen losing steam

However, If we don't turn down then the doji candlestick pattern can be used to estimate the next target. The doji pattern often occurs at mid-points of trend moves and so the upside target would be 1,445.

My money is on the down move but we'll see soon enough. Good luck with your Emini trading.

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Filed Under Doji Candlestick

Tuesday 17 April 2007

Doji Candlestick Pattern Today, Gap Up Yesterday

The Emini closed up 3.5 points at 1,479.00 on Tuesday. Quite a day today with a large number of technical signals happening:

  • Doji pattern today with the opening price similar to the closing price
  • After a gap up day yesterday, signaling extreme bullishness then indecision
  • Larry Williams Failed Oops pattern with open and close above yesterday's high
  • High churn day with volume above average at 1.3 million contracts traded and below average range at less than 8 points
  • In fact the high churn was actually stopping volume with range below yesterday but volume higher than yesterday, and
  • High volume with mid-close bar signaling profit taking in the afternoon

Below is a chart showing how over-extended the market is right now. The Trading Index Oscillator hit +181 today - the highest value since 13 September 2005. We're setting up for a high probability TRIN exhaustion signal once this oscillator turns down.

The Trading Index Oscillator is discussed in more detail here. 

Emini Trading Index TRIN Oscillator Image

Lastly, if you're interested in how the Bond market affects the Emini check out this Bond inter-market analysis page. I'll probably re-visit some of these Bond market valuation and turning point indicators over the next couple of days. Apologies if the article is too long or too technical.

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Filed Under Doji Candlestick

Tuesday 17 October 2006

Doji Candlestick Pattern on High Volume

“Drop and Pop” today on very high volume. The Emini closed down 4.25 points at 1,371.75 on Tuesday. Déjà vu? It felt like Friday 6 October all over again with a long legged Doji candlestick pattern on high volume. Do you know which way to trade the Emini market now?

Doji Candlestick Image

Doji déjà vu …

The Emini gapped down at the open, 4 points below yesterday's close. It then continued to fall to 1,364 then bounced strongly on high volume to eventually close near the high at 1,371.75. Once again the open and close were within 0.25 points of each other - a classic long legged Doji candlestick pattern. The volume was 1.3 million Emini contracts today, close to the highest values we’ve experienced in the last couple of weeks, as you can see from the chart above.

There was also inter-market divergence today with the NASDAQ failing to close it’s gap down. Whereas the Dow showed a much more bullish pattern and closed above yesterday’s low. This adds to the divergence argument that I mentioned yesterday, where the Dow is acting stronger than the NASDAQ - all bearish signs in the longer term.

A simple Emini pattern

I've talked about Doji candlestick patterns on the Emini a couple of times before. Briefly, Doji is the name of a Japanese candlestick charting pattern that occurs when the open and close of the bar of virtually identical. When the open and close are either at the top or the bottom of the range, the pattern is called a long legged Doji. In today’s case the close was near the top and this pattern is bullish, particularly on large volume.

Last time around, on Friday 6 October, I showed a very simple system to exploit this pattern. The open and close need to be in the top quarter of the range and today's low needs to be below yesterday’s low. That's it! There are only 83 trades in the S&P over the last 20 years and the stop is rather large, however, the profit factor is 4.8 and average winning trade about 5 points. This analysis shows the potential of going long, even at this late stage in the rally.

Trade when everything comes together

As I mentioned a couple of days ago, not many of my exhaustion indicators are showing that the market has finished its rally. However, a couple of my trend oscillators have turned down. My preference is to only trade when both my trend and exhaustion indicators are pointing in the same direction. Besides, my trading partner Rob always tells me I enter too early.  But I'm sure we won't have to wait long - there's always plenty going on in the Emini market.

Do a Google search for Doji or long legged Doji candlestick pattern to get more information.

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Filed Under Doji Candlestick

Tuesday 10 October 2006

Doji Candlestick and Weakness

Doji candlestick pattern and weakness today. The Emini rose 1.5 points and closed at 1,360.75 on Tuesday. Normal trading volumes resumed today but no breakout move yet. Does today’s trading activity help determine the next market move?

Doji Candlestick Open Close Image

Doji candlestick shows uncertainty

The Doji candlestick pattern has been discussed in a previous post. Briefly, Doji is the name of a Japanese candlestick charting pattern that occurs when the open and close of the bar are virtually identical. Today’s Emini open was 1,359.75 and the close was 1,360.75 - so the open and close were within 1 point of each other.

This pattern shows there is indecision in the market and usually occurs at turning points or mid-trend. Today’s particular pattern was a Star Doji, with the open and close above yesterday’s open to close range. This pattern is more typical of market tops and becomes more significant because of the low volume and range over the last four days.

How to use daily open and close prices

Today, I’d like to introduce another indicator. Last week, I talked about the differences in the way professionals and non-professionals trade. Non-professionals check their charts at night and place orders for the next day’s open; whereas professionals wait for the market trend to develop during the day and place their trades later. Therefore, comparing moves from yesterday’s close to today’s open with moves from today’s open to today’s close allows us to quantify professional and non-professional market activity.

The indicator I use to measure this is not easy to explain without going into some detail. Besides, I’d rather keep it to myself – for that reason I’ve called this indicator my Secret Weapon No. 2. It’s plotted on the chart above and labeled Secret 2. It’s an oscillator with a midpoint value of 50 and turning points typically above 100 and below 0.

This is one of my favorite indicators because it frequently turns before the market. Today, my Secret Weapon No. 2 indicator turned down from yesterday’s value of 80. I usually pay more attention to turns when they occur closer to 100 or 0, but combine this with today’s Doji candlestick pattern and the low volume and range over the last four days, and the turning point becomes more significant.

Use this indicator with care

Remember, combining a number of non-correlated market indicators and patterns will help you identify high probability turning points.

Do a Google search for Doji candlestick pattern or open close range to get more information.

Filed Under Doji Candlestick

Thursday 28 September 2006

Emini Doji Candlestick Pattern

Candlestick charting shows a Doji pattern today.  The Emini was virtually unchanged at 1,347.25 on Thursday and indecision in the market is shown by this Doji pattern.  Keep reading below to find out more about this pattern and how it can be used to highlight market turning points.

Doji Candlestick Pattern Image

There are 5 variations of the Doji candlestick pattern

Doji is the name of a Japanese candlestick charting pattern that occurs when the Open and Close of the bar are virtually identical.  Today's Emini Open was 1,347.50 and the Close was 1,347.25.  So the Open and Close were within 0.25 of a point of each other.  When the Open and Close are this close it shows there is indecision in the market.

There are several variations on the Doji candlestick pattern.  If the bar's range is unusually high and the Open and Close are in the middle this is a Long Legged Doji.  If the Open and Close are at the top of the bar this is a Dragon Fly Doji.  If the Open and Close are at the bottom of the bar this is a Gravestone Doji.  If the Open and Close are above or below yesterday's Open to Close range this is a Star Doji.  Lastly, if the Open and Close are within yesterday's Open to Close range this is a Harami Doji.  And that's the pattern that we saw today.

But Doji candlestick patterns alone have low predictive value

Most candlestick charting commentaries say that Star Dojis are more predictive of market turning points than Harami Dojis.  However, in my backtesting of these patterns I don't see any noticeable difference between these two patterns.  Overall, using some simple rules with no optimization, I can generate a Doji trading system with a profit factor of 1.37 and 100 or so trades in the S&P over the last 20 years.  These aren't great stats and so I never rely on this candlestick pattern alone.

The chart above is a normal OHLC daily bar chart, not a candlestick chart.  However, I have written some simple code that adds text to the chart when a Doji pattern is identified.  Three patterns were identified in the last 3 months (note: full text of the first pattern has been cropped).

Some final words of caution

Remember, don't use this pattern alone; combine it with other non-correlated market indicators to identify high probability market turning points.

Do a Google search for Doji candlestick pattern to get more information.

Filed Under Doji Candlestick

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