The Gravestone Doji is a Candlestick that is associated with bearish trades… what about profitable trades?

The Gravestone Doji Candlestick is a popular Candlestick Pattern and it is taught by educators and featured on websites providing knowledge to those with the patience to learn.  This is another article in a series of articles that cover popular Technical Analysis methods and are backtested to see how they handle different scenarios.  Often, Technical Analysis strategies would entail more than just one criteria, but in this case the Gravestone Doji Candlestick will stand alone.

How the Gravestone Doji Candlestick Pattern will be tested.

About the Modeling Quality

In MetaTrader 4, there is the Strategy Tester and it backtests trades that have taken place in the past.  Is it the most accurate method of backtesting?  No, unless you are using “real ticks”, which may still fall out of alignment with the particular broker and it becomes a complete mess.  So the modeling quality rates with what is considered a ‘tick’ in MT4 is going to be 90%, which should provide a good enough simulation as long as the backtested strategy is not scalping or too sensitive to news events where fluctuations within a minute can create whipsaws.  It is generally a good enough modeling quality rate for just about anything else.

Multiple Results with Different Time Frames, Trading Styles and Instruments

The following Time Frames will (was) be used:

• 5 Minute
• 1 Hour (No instances of Gravestone Doji Candles on the EURUSD, USDJPY or AUDUSD)

Styles featured will include:

• 20 pip Take Profit and Stop Loss of 100 pips
• 20 pip Take Profit with a 20 pip Stop Loss
• 20 pip Take Profit with a 20 pip Stop Loss and a 15 pip Trailing Stop
• 20 pip Take Profit with a 60 pip Stop Loss
• 55 pip Take Profit and Stop Loss of 100 pips
• 55 pip Take Profit with a 20 pip Stop Loss
• 55 pip Take Profit with a 35 pip Stop Loss and a 25 pip Trailing Stop
• 20 pip Take Profit with a 60 pip Stop Loss

Used as an all-encompassing pattern for testing purposes.

Instruments Used will Include:

• EURUSD
• USDJPY
• AUDUSD

What range of time will be the Gravestone Doji Candlestick Pattern be tested?

The Gravestone Doji Candlestick Pattern will be tested during the period of June 1, 2015 to May 31, 2018.  Is it necessarily an adequate time frame to test?  Possibly not, but there are a wide array of market environments.

What is The Gravestone Doji Candlestick Pattern? 

It is a Candlestick that simply has a Low that is equal to the Close and Open.  The High is higher than all three.  There is no candlestick body on this candle.

It is hard to find with larger time frames due to the odds being extremely low of having an open and close price being the same and the concurrent event of the low having such a commonality.

EURUSD – 5 Minutes

20 pip Take Profit and Stop Loss of 100 pips

20 pip Take Profit with a 20 pip Stop Loss

20 pip Take Profit with a 20 pip Stop Loss and a 15 pip Trailing Stop

20 pip Take Profit with a 60 pip Stop Loss

55 pip Take Profit and Stop Loss of 100 pips

55 pip Take Profit with a 20 pip Stop Loss

55 pip Take Profit with a 35 pip Stop Loss and a 25 pip Trailing Stop

55 pip Take Profit with a 55 pip Stop Loss

USDJPY – 5 Minutes

20 pip Take Profit and Stop Loss of 100 pips

20 pip Take Profit with a 20 pip Stop Loss

20 pip Take Profit with a 20 pip Stop Loss and a 15 pip Trailing Stop

20 pip Take Profit with a 60 pip Stop Loss

55 pip Take Profit and Stop Loss of 100 pips

55 pip Take Profit with a 20 pip Stop Loss

55 pip Take Profit with a 35 pip Stop Loss and a 25 pip Trailing Stop

55 pip Take Profit with a 55 pip Stop Loss

AUDUSD – 5 Minutes

20 pip Take Profit and Stop Loss of 100 pips

20 pip Take Profit with a 20 pip Stop Loss

20 pip Take Profit with a 20 pip Stop Loss and a 15 pip Trailing Stop

20 pip Take Profit with a 60 pip Stop Loss

55 pip Take Profit and Stop Loss of 100 pips

55 pip Take Profit with a 20 pip Stop Loss

55 pip Take Profit with a 35 pip Stop Loss and a 25 pip Trailing Stop

55 pip Take Profit with a 55 pip Stop Loss

What Conclusions to Make About the Gravestone Doji Candlestick?

The Gravestone Doji Candlestick was used as intended as an opportunity to short.  Unfortunately, on its own it is not exactly reliable as far as results are concerned.  When trades have an opportunity to breathe a bit (i.e. Looser Stop Losses and Higher Take Profit points), the trades tended to do better.  However, it is not a candlestick that can be relied upon on its own with any sort of a setting.

It can be filtered down and it is possible to figure out where the Doji Candlestick goes wrong, but be wary of model fitting.  It’s tough to recommend this candlestick’s use, but it is worthy of experimentation in backtesting to see if it works in certain environments better than others.

As always, do not manually backtest and do not manually trade.

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