Written and copyright © 2008-2013 by Thomas N. Bulkowski. All rights reserved.
In my book,
Encyclopedia of Candlestick Charts, pictured on the right,
I explore the entire range of candlestick patterns from abandoned babies to windows (not exactly A to Z, but you get the idea), in both bull and bear markets, using almost 5 million candle lines
in the tests.
The book takes an in-depth look at 103 candlestick patterns and reports on behavior and rank (3 types: reversal rate, frequency, and overall performance), identification guidelines,
performance statistics (tables of general statistics, height, and volume), trading tactics (tables of statistics on reversal rates and performance indicators),
and wraps each chapter with a sample trade. I share a sliver of that information below. If you like what you read here, then you will love the book. Help support this website and buy a copy
by clicking on the above link.
Many people look at a gravestone doji with alarm, especially during an uptrend. They believe that it signals a bearish reversal. It does, but only 51% of the time. I call that random.
The trend after the reversal does not amount to much, placing the performance rank at 77 out of 103 candles where a rank of 1 represents a trend that really moves. There are exceptions, of course,
and a gravestone doji can signal a lasting trend change. The analysis I conducted (see my Candlestick Encyclopedia book) highlights several tips to identify gravestone doji candles that outperform.
See the above link.
Gravestone Doji Important Results
Theoretical performance: Indecision to bearish reversal (during up trends)
Tested performance: Bearish reversal 51% of the time
Frequency rank: 42
Overall performance rank: 77
Best percentage meeting price target: 79% (bear market, up breakout)
Best average move in 10 days: 5.09% (bear market, up breakout)
Best 10-day performance rank: 27 (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.
Gravestone Doji Discussion
The actual, tested, behavior of the gravestone doji matches the theoretical performance: indecision or randomness, packaged into a tight little bundle of joy. Price closes at
the bottom of the candlestick and price should breakout downward most often, which it does.
The gravestone doji is rare in a bear market, which I find odd. That can be due to the dearth
of bear markets, but the ratio of bullish to bearish sightings is about 15 to 1.
Once price breaks out, the performance is lousy, ranking 77 -- near the bottom of the list. That means price does not trend far after a breakout. However, after an upward breakout in
a bear market, price moves higher by 5.09% in 10 days, which is quite good. When you consider that price closed at the bottom of this candlestick, the climb is even higher (because I
measure from a close above the top of the candlestick as the breakout, and do not start counting from the bottom of the doji). Using the height of the candle projected
in the direction of the breakout shows that the trend meets the predicted target 79% of the time, which I consider acceptable.
Gravestone Doji Identification Guidelines
|Number of candle lines||One.|
|Price trend leading to the pattern||None required.|
|Configuration||Look for a candle with a tall upper shadow and little or no lower one. The opening and closing prices should be within pennies of each other.|
Three Trading Tidbits for Gravestone 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.
- Gravestone doji candles that appear within a third of the yearly low perform best -- page 233.
- Gravestone doji candles taller than the median show price that moves about 50% farther after the breakout than those shorter than the median -- pages 233-234.
- Ignore gravestone doji in congestion areas -- pages 234-235.
Gravestone Doji Example
The daily chart shows a gravestone doji candlestick (A) at the top of a short up trend. Notice how the opening and closing prices are at
the bottom of the candle line with a tall upper shadow. In this example, price trends upward for a few days leading to the gravestone doji and then reverse direction -- falling.
Price continues lower following the general market down.
-- Thomas Bulkowski
Copyright © 2008-2013 by Thomas N. Bulkowski. All rights reserved. So many stupid people and so few asteroids.