This is the description as per the Lit Wick website:
How to Identify it:
First day is a long black day
Second day is a doji that gaps in the direction of the previous trend
The shadows of the doji should not be long
What it Means:
“In a downtrend, the market bolsters the bears with a long black day and gaps open on the second day. However, the second day trades within a small range and closes at or near its open. This scenario generally shows the potential for a rally, as many positions have been changed. Confirmation of the trend reversal would be a higher open on the next trading day.”
We tested this pattern on every one of the S&P 500 stocks since 1990 and compared the performance results to the average 5 day move in all the S&P 500 stocks. The entry was at the open on the day after the Doji star bullish pattern setup and the exit was at the open 5 trading days after entry. This is what the Doji Star bullish setup looks like.
Below are the results of the Doji Star, and as a comparison the average 5 day holding period of all the S&P 500 stocks and all the other candlestick patterns that we have tested to date.
The average 5 day return after a Doji star was -.18% which is significantly worse than the average 5 day return for all other days. The win percent was also worse than the win percent of all other 5 day periods. This doji star pattern is supposed to be a bullish reversal formation, yet after we tested the pattern we now know that the pattern typically loss’s more money than a typical 5 day period. Do you think we can get our money back from all the technical analysis books which suggest buying after the formation?
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