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?Let Ripe Trade back test your trading concepts , Click Here
2 comments:
Try testing the DOW Jones index instead. You would receive more data from the DOW and this should confirm the Doji Star patern works. March 6th looks like a Doji Morning Star, with trend reversal being confirmed two days later, not the next day. Then today, April 3rd we might have the reversing Doji Evening star. Confirmation of this will be determined Monday and Teusday.
We didnt test this on the index we tested this on the stocks in the S&P 500. We tested this on the 500 stocks that make up the S&P 500. This is a lot of data, 470 more stocks than the dow jones.
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