System on collective2

More about the Morning Doji Star

Last month, I blogged that the morning doji star was a very rare pattern. I claimed that on an EOD basis, there are only ten instances of occurrence of this pattern in SP500 stocks over the last 15 years. The 10 instances are shown below. Of the 10 opportunities, 6 are profitable in the short term

1. AES on 10/30/1997

Morning Star Doji : a mythical pattern

The morning star star is shown on the left.

Quantifying the Morning Star Doji

Traditionally, a formed when the following conditions are met:

Prior to Day 1: a down trend exists. I characterize this be having three days with lower closes
Day 1 candle : Long and Dark. I have characterized this candle with a body that is atleast 65% of the candle length
Day 2 candle : This candle is the doji candle. The candle should gap down. The High of the candle needs to be less than the low of Day 1 candle. This is a doji, so the candle body should be less than 15% of the total candle length
Day 3 candle : This should be a white candle that gaps up. Since this is a white candle, the Close is higher than the Open. The Low of this candle should be higher than the High of the previous day candle

Profitability of the bullish kicker candlestick pattern

A bullish kicker is signal is shown on the left. 

It shows a change in sentiment on what the buyers and sellers feel about the stock. The first candle is dark (close < open). I generally like see this red candle at the end of a trend. The bullish candle is the green candle (close > open) and the Low is greater than the previous candle's High. This usually marks a drastic change in sentiment regarding the stock. The traders before the green candle were pessimistic about the stock and the sellers were winning. They were successful in bringing the stock down. The kicker candle usually represents a change in sentiment and buyers are back. This may represent a positive announcement by the company.

Adjusting Yahoo Data

In my previous post, I had explained that Yahoo and Google EOD (End of Day) historical data does not match.

Let us take a look at XOM. On 12/30/1994, Google reports the close price as $43.85. Yahoo reports the close price of $87.35 and also reports an adjusted close of $35.53. Y! adjusted close prices are adjusted for any splits and dividends. On the other hand, Google only adjusts for splits.