Bulkowski’s Northern Doji

Written and copyright © 2008-2009 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.

Despite the belief that a northern doji is supposed to be a bearish reversal candlestick, it acts as a continuation 51% of the time. That is about random, so do not expect a reversal. The northern doji is just another doji candlestick pattern that means nothing at all even after price is trending upward. The candle appears often, ranking 6th out of 103 candles, where 1 is famous and 103 is unknown. The overall performance rank is well behind the leaders, at 83. Is there nothing redeeming about the northern doji? Let’s take a closer look.

Important Results

Theoretical performance: Bearish reversal Tested performance: Bullish continuation 51% of the time Frequency rank: 6 Overall performance rank: 83 Best percentage meeting price target: 88% (bull market, up breakout) Best average move in 10 days: 3.17% (bull market, up breakout) Best 10-day performance rank: 53 (bull 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.

Northern Doji

Discussion

As I mentioned in the introduction, the northern doji is supposed to act as a bearish reversal, but is a bullish continuation instead. However, the different is slight, just one percentage point. With a frequency rank of 6, you will find them almost as often as sand at a beach. When do you find them, do not expect price to trend long after the breakout. The northern doji ranks 83 for overall performance.

Using the height of the candlestick projected upward or downward from the breakout price (which is the top or bottom of the candle, respectively), price hits the target 88% of the time, which is quite good. The best move is an average rise of 3.17% over 10 days where a 6% or higher move I consider mouthwatering. The best performance rank is 53, and that occurs after an upward breakout in a bull market. That is just mid list, too, so do not get excited.

Identification Guidelines

Three Trading Tidbits

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.

1. Northern doji candles that appear within a third of the yearly low perform best -- page 250.
2. Opening gap confirmation works best -- page 254.
3. Breakouts below the 50-trading day moving average lead to the best performance -- page 254.

Example

Shows is a daily chart with a northern doji candlestick at A. Any type of doji qualifies as a northern doji provided it appears in an upward price trend like the one shown here. A doji candlestick has the opening and closing prices within a few pennies of each other. In this case, a long lower shadow would suggest the bulls battled back the bears for possession of the price trend. Nevertheless, the bears won in the coming days when price broke out downward from the candlestick. This northern doji acted as a bearish reversal and went wee, wee, wee, all the way home.

Other Examples

• Northern doji in Dow Industrials.

-- Thomas Bulkowski