A Column for your Backtest

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.