Simple Doji Reversal Strategy - Your Secret Trading Weapon?

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2 years ago
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Doji Candlesticks Reversals.
In this video, we explore the doji pattern and its effectiveness in the stock market. We explain what a doji is and how to spot it on a chart. We backtest the doji pattern to determine its performance compared to random periods, using specific trading rules instead of anecdotal evidence.

We also improve the doji strategy by implementing improved exit rules. Our trading code is available for purchase on our website, where we have backtested and coded all candlestick patterns. The top ten candlesticks outperform buy and hold, even though they are invested only 35% of the time.

We cover the four types of dojis - Neutral, Gravestone, Dragonfly, and Long-Legged - and their signals. We use the S&P 500 (SPY) market for our trading rules, where we buy when we spot one of the four dojis and sell N-days later.

Our backtest shows that the doji pattern yields slightly better results than random periods. However, we add a sell criterion to exploit the mean reversion effect in the market, which yields an average gain of 0.32% per trade over a four-day holding period.

We also implement an RSI filter to buy when the market is somewhat oversold, resulting in only 62 trades but an improved average gain per trade of 0.54%. Although the equity curve is not particularly inspiring, these results demonstrate the effectiveness of the doji pattern when paired with specific trading rules.

Visit our website for more information on candlesticks and performance, and don't forget to like and subscribe to help us deliver more free videos. Good luck trading!

Chapters
0:00 Doji Candlesticks reversals
1:00 Different types of Doji
1:35 Trading Rules
1:43 Backtest result
2:07 Improvement
2:20 A Twist

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