Doji Pattern – Reversal | Trading Strategy (Filter & Exit)

I. Trading Strategy

Concept: Pattern recognition based on candlesticks. Research Goal: Performance verification of Doji candlesticks with a counter-trend bias. Specification: Table 1. Results: Figure 1-2. Trade Setup: Doji Candlestick: abs((Close[i−1] − Open[i−1]) / (High[i−1] − Low[i−1])) ≤ 0.05. Index: i ~ Current Bar; [i−1] ~ Doji Bar. “abs”: absolute value. Trade Entry: Long trades: A buy stop is placed one tick above the high of the Doji candlestick. Short trades: A sell stop is placed one tick below the low of the Doji candlestick. Trade Exit: Table 1. Portfolio: 42 futures markets from four major market sectors (commodities, currencies, interest rates, and equity indexes). Data: 32 years since 1980. Testing Platform: MATLAB®.

II. Sensitivity Test

All 3-D charts are followed by 2-D contour charts for Profit Factor, Sharpe Ratio, Ulcer Performance Index, CAGR, Maximum Drawdown, Percent Profitable Trades, and Avg. Win / Avg. Loss Ratio. The final picture shows sensitivity of Equity Curve.

Tested Variables: Trend_Index & Time_Index (Definitions: Table 1):

Figure 1 | Portfolio Performance (Inputs: Table 1; Commission & Slippage: $0).

STRATEGY	SPECIFICATION	PARAMETERS
Auxiliary Variables:	N/A
Setup:	Doji Candlestick: abs((Close[i−1] − Open[i−1]) / (High[i−1] − Low[i−1])) ≤ Body_Index. Index: i ~ Current Bar; [i−1] ~ Doji Bar. “abs”: absolute value.	Body_Index = 0.05;
Filter:	Long trades: Close[i−1] < Close[i−1−Trend_Index] Short trades: Close[i−1] > Close[i−1−Trend_Index] Index: i ~ Current Bar; [i−1] ~ Doji Bar.	Trend_Index = [1, 40], Step = 1;
Entry:	Long trades: A buy stop is placed one tick above the high of the Doji candlestick. Short trades: A sell stop is placed one tick below the low of the Doji candlestick.
Exit:	Time Exit: nth day at the close, n = Time_Index. Quick Exit: Long Trades: A sell stop is placed one tick below the min(Low[k − 1], Low[k]). Short Trades: A buy stop is placed one tick above the max(High[k − 1], High[k]). Index: k ~ Entry Bar. Stop Loss Exit: ATR(ATR_Length) is the Average True Range over a period of ATR_Length. ATR_Stop is a multiple of ATR(ATR_Length). Long Trades: A sell stop is placed at [Entry − ATR(ATR_Length) * ATR_Stop]. Short Trades: A buy stop is placed at [Entry + ATR(ATR_Length) * ATR_Stop].	Time_Index = [1, 40], Step = 1; ATR_Length = 20; ATR_Stop = 6;
Sensitivity Test:	Trend_Index = [1, 40], Step = 1 Time_Index = [1, 40], Step = 1
Position Sizing:	Initial_Capital = $1,000,000 Fixed_Fractional = 1% Portfolio = 42 US Futures ATR_Stop = 6 (ATR ~ Average True Range) ATR_Length = 20
Data:	42 futures markets; 32 years (1980/01/01−2011/12/31)

Table 1 | Specification: Trading Strategy.

III. Sensitivity Test with Commission & Slippage

Tested Variables: Trend_Index & Time_Index (Definitions: Table 1):

Figure 2 | Portfolio Performance (Inputs: Table 1; Commission & Slippage: $50 Round Turn).

IV. Rating: Doji Pattern – Counter-Trend | Trading Strategy

A/B/C/D

Related Entries: Doji Pattern – Reversal (Setup & Filter) | Doji Pattern – Trend (Setup & Filter) | Doji Pattern – Trend (Filter & Exit)
Related Topics: (Public) Trading Strategies

CFTC RULE 4.41: HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.

RISK DISCLOSURE: U.S. GOVERNMENT REQUIRED DISCLAIMER | CFTC RULE 4.41

Codes: matlab/candlesticks/doji/countertrend