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Written by and copyright © 2005-2018 by Thomas N. Bulkowski. All rights reserved. Disclaimer: You alone are responsible for your investment decisions.
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My book,
Encyclopedia of Candlestick Charts  ,
pictured on the left, takes an in-depth look at candlesticks, including performance statistics.
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Why they decided to give a special name to another doji candlestick is a mystery to me. The gapping down doji candlestick is a doji with a gap. Yawn. It is supposed to be a bearish continuation
candle in theory but acts as a bullish reversal 56% of the time. That is almost random. The overall performance is awful, too, ranking 88th out of 103 candles, where a rank of 1
represents the best performing candle.
Gapping Down Doji Important Results
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Theoretical performance: Bearish continuation
Tested performance: Bullish reversal 56% of the time
Frequency rank: 57
Overall performance rank: 88
Best percentage meeting price target: 95% (bull market, up breakout)
Best average move in 10 days: 2.52% (bull market, up breakout)
Best 10-day performance rank: 65 (bear market, up breakout)
All ranks are out of 103 candlestick patterns with the top performer ranking 1. "Best" means the highest rated of the four combinations of bull/bear market, up/down breakouts.
The above numbers are based on hundreds of perfect trades. See the glossary for definitions.
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 Gapping Down Doji
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Gapping Down Doji Discussion
The gapping down doji candlestick acts as a bullish reversal of the prevailing downtrend despite what theory says, at least according to my numbers. After price reverses, it does not
trend far, either, scoring a rank of 88 and rising just 2.52% in 10 days. I consider a move of at least 6% to be exciting. The best performance rank over 10 days is just 65, where
1 is best, so it flunks there, too.
Perhaps I am having a bad day, but I do not see anything about this candle to excite me. In fact, none of the doji candlesticks are what traders expect. To me, they mean nothing at all.
Performance is about random or near random (around 50% to 59%). I do not believe that you can look at a doji and say, with certainty, that price will breakout upward or downward tomorrow.
I have tried that with many candlestick patterns without success (which is why I wrote Encyclopedia of Candlestick Charts...to define the probabilities of reversal and extent of the
move).
Gapping Down Doji Identification Guidelines
| Characteristic | Discussion |
| Number of candle lines | One. |
| Price trend leading to the pattern | Downward |
| Configuration | In a downtrend, price gaps lower and forms a doji (a candle in which the opening and closing prices are no more than a few pennies apart). |
Three Trading Tidbits for Gapping Down Doji
If you want a few bones from my Encyclopedia of candlestick charts book, here are three to chew on. The pages refer to the book
where the tips appear.
- Gapping down doji candles that appear within a third of the yearly low perform best except after an upward breakout in a bear market -- page 214.
- Determine the gap type to help anticipate the breakout direction -- page 216.
- The candle breaks out upward most often -- page 217.
Gapping Down Doji Example
The daily chart shows a gapping down doji candlestick (A) in a down trend. I classify a breakout as when price closes either above the top
or below the bottom of the candlestick pattern, including the shadows. In this case, the breakout is upward. The uptrend does not last for long (4 days) before the downward move
continues.
Notice how the gap above A almost matches the price level of the gap to its left (B). You can consider the
AB move as creating an island reversal. Coupled with the left shoulder (LS), head, and right shoulder (RS), the chart pattern is a
head-and-shoulders top, albeit somewhat unsymmetrical. All of those patterns suggest price will continue down.
-- Thomas Bulkowski
Written by and copyright © 2005-2018 by Thomas N. Bulkowski. All rights reserved. Disclaimer: You alone are responsible for your investment decisions.
See Privacy/Disclaimer for more information.
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