Here are two columns from my column library that most traders aren’t capturing in their backtests.
I created these many years ago, and they’ve been in every backtest I’ve run since.
The first is what I call dojiness.
You probably know what a doji candle is.
If you look up the definition of a doji you’ll find a lot of disagreement about what is or isn’t a match – which is pointless.
Anytime you try to reduce some factor to a binary yes/no, that should be a red flag.
This is why I created the dojiness concept. It describes the degree to which a candle is a doji.
Here’s the definition:
dojiness = (Close - Open) / (High - Low)
The range of values varies from -1 to 1, with zero being a “perfect” doji (where the open price equals the close price).
A value of 1 means the candle has no wicks and is perfectly green.
A value of -1 means the candle has no wicks and is perfectly red.
When applied thoughtfully, this column often appears as important when I run the Strategy Cruncher on my backtests.
In fact, in one of my strategies, the value of this tells me whether I should go long or short (pretty dang predictive!)
Here are situations where it might be useful in your strategy:
- Applied to yesterday’s daily candle in an intraday strategy
- Applied to the most recent candle before your trading signal
- Applied to today’s opening range candle
- Applied to recent daily action
Like any indicator, it’s not a silver bullet, but with some creativity, you can apply it to a strategy in a way that’s predictive.
-Dave
P.S. Question: Are you an Amibroker user? I’m looking for some volunteers to beta test something I’m working on. Hit reply and let me know if you’re interested.