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How to correctly use Doji candlesticks to spot a reversal?

  • #81
  • Jun 15, 2014 5:18pm Jun 15, 2014 5:18pm
http://thepatternsite.com/LongLegDoji.html

Long Legged Doji Discussion

My tests show that the long legged doji acts as a bullish continuation candlestick 51% of the time, which I consider random. Thus, the indecision label is an apt one. The breakout direction is not known, and trying to depend on this candle hinting at a direction is fraught with error.
The overall performance rank is 37, which is closer to 1 (best performance) than 103 (worst). The best average move 10 days after the breakout is a rise of 4.62% in a bear market. That climb gives the long legged doji its best rank of 38 (bear market, up breakout). The 38 rank is a different measure than the overall performance rank of 37, which combines the results of 1, 3, 5 and 10 days for all market directions.
tradewith60
  • #82
  • Jun 15, 2014 5:36pm Jun 15, 2014 5:36pm
Quoting 60minuteman
http://thepatternsite.com/LongLegDoji.html Long Legged Doji Discussion My tests show that the long legged doji acts as a bullish continuation candlestick 51% of the time, which I consider random. Thus, the indecision label is an apt one. The breakout direction is not known, and trying to depend on this candle hinting at a direction is fraught with error. The overall performance rank is 37, which is closer to 1 (best performance) than 103 (worst). The best average move 10 days after the breakout is a rise of 4.62% in a bear market. That...
That's interesting. But from looking at that site the doji worked 2/3, which is more than 50 percent, the market has constant higher highs, and higher lows, which is a good sign of an upthrend, meaning that someone is buying every chance the market drops. That is a daily Doji, and should give plenty of chances to trade on a lower timeframe. Look at the chart, one of the most important thing about a Doji is where it is, if is is under a down candle it is a sign of strength and if it is above a bear candle it is a sign of weakness. Go back and look at the result again and you would see that 2 of the 3 candle went the opposite direction of the previous candle, and it's logical when you think about it. Following a bull candle if the candle was bullish, then it would make a Doji, only the opposite action can (selling)cause that, however since it has action on both side, you have to go down to a lower timeframe to confirm and see which came last. But that was an interesting read.
Being a trader is lonely, but being a great trader is lonelier still
  • #83
  • Jun 15, 2014 5:42pm Jun 15, 2014 5:42pm
Quoting saneblane
{quote} That's interesting. But from looking at that site the doji worked 2/3, which is more than 50 percent, the market has constant higher highs, and higher lows, which is a good sign of an upthrend, meaning that someone is buying every chance the market drops. That is a daily Doji, and should give plenty of chances to trade on a lower timeframe. Look at the chart, one of the most important thing about a Doji is where it is, if is is under a down candle it is a sign of strength and if it is above a bear candle it is a sign of weakness. Go back...
in a bull market, breakout long, 1/1 RR, yes it worked 68% - but not a reversal.
tradewith60
  • #84
  • Jun 15, 2014 5:44pm Jun 15, 2014 5:44pm
Quoting 60minuteman
{quote} in a bull market, breakout long, 1/1 RR, yes it worked 68% - but not a reversal.
Lol yea I was just nitpicking, can't really use the info from 3 candles though for any proper study. But where did he get that chart from, it looks like he drew it with his hand. I am not use to seeing a chart like that, it looks weird.
Being a trader is lonely, but being a great trader is lonelier still
  • #85
  • Jun 15, 2014 5:47pm Jun 15, 2014 5:47pm
Quoting saneblane
{quote} Lol yea I was just nitpicking, can't really use the info from 3 candles though. But where did he get that chart from, it looks like he drew it with his hand. I am not use to seeing a chart like that, it looks weird.
Rules typically don't apply if the chart "looks weird"...
Money Can't Buy Happiness. Poverty Can't Buy SHIT! You Choose!
  • #86
  • Jun 15, 2014 7:27pm Jun 15, 2014 7:27pm
Quoting 60minuteman
{quote} Is there any facts to back this up Hanover? what is the increased probability? - I'm yet to find any simple technical patterns that are any more effective than a 50/50 guess. If they we're 'high probability' we would have a high percentage of traders making money.... The facts tell a different story.
I don't have any numbers re S/D zones. I tend not to trust statistics, anyway, because most candles or chart patterns are subjective. For example, how do you precisely define a "doji" or "pinbar" — what is the max allowed size of the upper wick relative to the body, how close to the candle midpoint must the body be, when does a doji become a gravestone doji, etc?

Moreover, with lines (S/R, trendlines etc) or zones, everybody tends to draw them differently, which further decreases the meaningfulness of any stats.

Instead, with any TA-based technique, I prefer to perform my own research, and see how well (or not) it works within my own trading philosophy. I was merely giving the OP some ideas that me might like to test for himself.

If you don't believe in chart-based analysis, that's fine. A lot of folk seem to enjoy debating whether technique X works better than Y. I don't want to get into a prolonged discussion. I spend too much time on forums as it is.
  • #87
  • Jun 15, 2014 7:31pm Jun 15, 2014 7:31pm
Quoting Magix
{quote} What you don't seem to realize... And will always fail at... Is that those of us that already do, try to coach those who cannot... You are only leading people into your saddened tale of misery...You are a statistic...not a trader. Pathetic and confused doesn't even begin to describe your market attributes. As if you don't try and kiss ass to all those senior to you...your own membership is testimony to this very thing. I digress... Anybody who has had the misfortune to read anything you've posted in the last 48 hours, can already see...you...

Sigh, Ok magix tell us all about this great New S/R, RR trick of yours to trade Dojis. I will be glad to learn something new. And me kissing up to anyone here? Hhaah, you don't know me too well. anyway good luck with the SR thing in trying to figure out why a doji fails or not at reversal, I would love to hear that explanation. Honestly I would, if anything you say can teach me anything, I would gladly listen, so go on and tell us.
Being a trader is lonely, but being a great trader is lonelier still
  • #88
  • Jun 15, 2014 7:32pm Jun 15, 2014 7:32pm
Quoting hanover
{quote} I don't have any numbers re S/D zones. I tend not to trust statistics, anyway, because most candles or chart patterns are subjective. For example, how do you precisely define a "doji" or "pinbar" — what is the max allowed size of the upper wick relative to the body, how close to the candle midpoint must the body be, when does a doji become a gravestone doji, etc? Moreover, with lines (S/R, trendlines etc) or zones, everybody tends to draw them differently, which further decreases the meaningfulness of any stats. Instead, with any TA-based...
cool Hanover, it's not a case of not believing in chart patterns - i'm just interested in why people believe in them, often with no statistics to back it up.

You will often hear that 'such and such' is high probability, but by their own admission, it's completely subjective.

There's a reason most people struggle with trading and I think these 'biases' may well be the reason.
tradewith60
  • #89
  • Jun 15, 2014 8:40pm Jun 15, 2014 8:40pm
Quoting saneblane
there is nothing special about them
true - they are just another INDICATOR of price not less not more.

When you looking at a candle (no matter if you call the candle susan, christin or detlef...) you dont look at the price itself, you look at an indicator.


just do it
  • #90
  • Jun 15, 2014 8:46pm Jun 15, 2014 8:46pm
Supply/Demand in conjunction with something else is the way to go. The key is to find something that puts the odds in your favor and keeps you discipline.
  • #91
  • Jun 15, 2014 8:57pm Jun 15, 2014 8:57pm
Quoting 2+2=4ex
Supply/Demand in conjunction with something else is the way to go. The key is to find something that puts the odds in your favor and keeps you discipline.
Quoting thodie
{quote} true - they are just another INDICATOR of price not less not more. When you looking at a candle (no matter if you call the candle susan, christin or detlef...) you dont look at the price itself, you look at an indicator.
Ghost Rider - WWTBMD?
  • #92
  • Edited Jun 16, 2014 12:09am Jun 15, 2014 9:08pm | Edited Jun 16, 2014 12:09am
Quoting thodie
{quote} true - they are just another INDICATOR of price not less not more. When you looking at a candle (no matter if you call the candle susan, christin or detlef...) you dont look at the price itself, you look at an indicator.
Yea but how much of the market was interested in the price? That's the 6000 pound gorilla in the room that no one wants to touch. By itself it doesn't say much, you need to know what happens there, to make a difference. We have traders here that use different things int their analysis, what I am interested is always what caused the Doji to be made, the Doji itself is just an indication that a currency in the market is s strong that it can move a chart so violently, because a Doji's price action alone is very violent. You could have a Doji, on a EURUSD chart and the EUR didn't even move, you can have a doji on the chart where the EUR move and the Usd didn't even move, or you could have a Doji on a chart where they both move. Which one has a probabilty of success on your chart? And trust me they are not the same probability. You can go research it yourself. S/R is not an isolated event, either, a lot of times price sits around the same level on different chart especially the majors, you wouldn't notice it but guess what, you have a reversal doji on an EURUSD, at the same level that EURUSD is the same level of S/R on another pair, what you don't see is that another currency slipped through it's support, and is now a counter party to anything you just saw on your chart, And trader are pounding the currency with orders, Support becomes resistance right? Well the balance of the market has shifted and you are still sitting in the dark cluless about it.

You cannot put much weight on a candle shape alone, but you can put alot of weight on the time of day it happen, and what is happening and which currencies were moving the market around the time of the Doji. Everything in the market has a reason, and it is not always present on the chart you are watching.

It doesn't make sense to get into that now anyway.Let's just stick to S/R RR
Being a trader is lonely, but being a great trader is lonelier still
  • #93
  • Jun 15, 2014 9:29pm Jun 15, 2014 9:29pm
Quoting saneblane
the Doji itself is just an indication that a currency in the market is s strong that it can move a chart so violently, because a Doji's price action alone is very violent. You could have a Doji, on a EURUSD chart and the EUR didn't even move, you can have a doji on the chart where the EUR move and the Usd didn't even move, or you could have a Doji on a chart where they both move.
Main article: Candlestick pattern
The doji is a commonly found pattern in a candlestick chart of financially traded assets (stocks, bonds, futures, etc.) in technical analysis. It is characterized by being small in length—meaning a small trading range—with an opening and closing price that are virtually equal.[1]
The doji represents indecision in the market. A doji is not as significant if the market is not clearly trending, as non-trending markets are inherently indicative of indecision. If the doji forms in an uptrend or downtrend, this is normally seen as significant, as it is a signal that the buyers are losing conviction when formed in an uptrend and a signal that sellers are losing conviction if seen in a downtrend.

http://en.wikipedia.org/wiki/Doji

The doji represents indecision in the market.
The doji represents indecision in the market.
The doji represents indecision in the market.
The doji represents indecision in the market.
The doji represents indecision in the market.
The doji represents indecision in the market.
Money Can't Buy Happiness. Poverty Can't Buy SHIT! You Choose!
  • #94
  • Jun 15, 2014 9:33pm Jun 15, 2014 9:33pm
Quoting Magix
{quote} Main article: Candlestick pattern The doji is a commonly found pattern in a candlestick chart of financially traded assets (stocks, bonds, futures, etc.) in technical...

  • #95
  • Jun 15, 2014 9:53pm Jun 15, 2014 9:53pm
Quoting saneblane
{quote} Yea but how much of the market was interested in the price? That's the 6000 pound gorilla in the room that no one wants to touch. By itself it doesn't say much, you need to know what happens there, to make a difference. We have traders here that use different things int their analysis, what I am interested is always what caused the Doji to be made, the Doji itself is just an indication that a currency in the market is s strong that it can move a chart so violently, because a Doji's price action alone is very violent. You could have a Doji,...
lets see hmmmm
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just do it
  • #96
  • Jun 15, 2014 10:46pm Jun 15, 2014 10:46pm
Quoting thodie
{quote} lets see hmmmm {image} {image}
I think those were the Dojis named Detlef....

I have no proof of this, just suspicion...

Nice charting, thodie!

Money Can't Buy Happiness. Poverty Can't Buy SHIT! You Choose!
  • #97
  • Jun 15, 2014 11:55pm Jun 15, 2014 11:55pm
Quoting saneblane
{quote} Yea but how much of the market was interested in the price? That's the 6000 pound gorilla in the room that no one wants to touch. By itself it doesn't say much, you need to know what happens there, to make a difference. We have traders here that use different things int their analysis, what I am interested is always what caused the Doji to be made, the Doji itself is just an indication that a currency in the market is s strong that it can move a chart so violently, because a Doji's price action alone is very violent. You could have a Doji,...
as a entry signal the doji within in its self isolated on one pair on one time frame has little to offer in regards to sell at the resistance or buy at the support.

having said that ,your point is some what lost here.not many understand the relevance of attention to the overall market .like yourself I don't require the chart for entry from this point.entry and the significance of this doji are inter related to the flows into related pairs ,the market stall point .the stall point dictates as to whether you take the reversal signal or ignore it and buy for a break from the s/r.the doji is just what it is described as, indecision. but you are totally 100 per cent correct in the fact that through related pairs you can determine with high probability which way to trade.
  • #98
  • Jun 16, 2014 1:48am Jun 16, 2014 1:48am
Quoting Magix
{quote} This questions has many answers because it really depends on the trade pair as well as the current session...are we trading to support, are we trading to resistance? The basics are as I have said... When support gets broken, it gets traded as resistance. In gauging these, I work with the LargeTimeFrame candles, indicator as posted and a series of Moving averages. The moving averages tell me the current trend and triggers, the candles tell me the possible supply and demand levels. Because I trip the M1 charts...my profit ranges are typically...

Just a little follow up on this chart...

Previous support tested as resistance...
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  • #99
  • Jun 16, 2014 1:56am Jun 16, 2014 1:56am
Candle structure...

Support for EA.
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Money Can't Buy Happiness. Poverty Can't Buy SHIT! You Choose!
  • #100
  • Jun 16, 2014 2:32am Jun 16, 2014 2:32am
that's not a proper area of supply.

the demand area is control as last time price was in you supply area it could not be pushed to break the demand area. In the example you give the doji's are merely absorbing orders before exhausting them and pushing through.

The correct trade in your example would be therefore to go long and demand, not short supply.

Quoting hanover
If the dojis occur in prior areas of supply/demand, this can significantly improve probability of a reversal. But as the screenshot demonstrates, nothing works 100% of the time. Here we see maybe 7-8 'reversal' candles (area B) that all occurred in an area of supply created by candle 'A', yet price broke further upward before eventually reversing. {image}
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