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.

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Filed Under Doji Candlestick

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