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Written and copyright © 2008-2010 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.
The gapping up doji candlestick performs less random than other types of doji candles. This one works as a bearish reversal 57% of the time, despite what theory says (bullish continuation).
After it appears and price breaks out, the ensuing price trend ranks 92 out of 103, where 1 is best. Thus, price does not trend for long.
The frequency of the candle’s appearance is about mid list, so you should be able to find it without trouble. Just look for a gap followed by a doji in a rising price trend.
Important Results
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Theoretical performance: Bullish continuation
Tested performance: Bearish reversal 57% of the time
Frequency rank: 49
Overall performance rank: 92
Best percentage meeting price target: 93% (bull market, down breakout)
Best average move in 10 days: 2.35% (bull market, up breakout)
Best 10-day performance rank: 72 (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.
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 Gapping Up Doji
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Discussion
Candlestick theory, according to authors and websites that I looked at, says the gapping up doji is a bullish continuation pattern. I found that it acts as a bearish reversal 57%
of the time. I consider that near random. The pattern occurs frequently, placing its rank at 49 or about mid list. When it does appear, the following trend is not a long one and the
overall performance rank of 92 (where 1 is best) shows that.
However, price moves far enough to meet the measure rule target 93% of the time after a downward breakout in the bull market. The best average move over the next 10 days
after a breakout is 2.35% where 6% or higher I consider to be a strong trend. The best 10-day performance rank is 72, which is well down the list.
Identification Guidelines
| Characteristic | Discussion |
| Number of candle lines | One. |
| Price trend leading to the pattern | Upward. |
| Configuration | Price gaps higher, including the shadows, in an uptrend and forms a doji candle. A doji is one in which the opening and closing prices are within pennies
of each other. |
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.
- Gapping up doji candles that appear within a third of the yearly low perform best -- page 224.
- Gapping up doji candles with upper shadows taller than the median perform well -- page 224-225.
- The gapping up doji breaks out downward most often -- page 227.
Example
The chart shows a gapping up doji candlestick on the daily scale at A. Price is moving up in a retrace of the downtrend and then it gaps higher
in a last gasp of bullish enthusiasm.
A doji forms, one in which the opening and closing prices are similar. This one has an unusually long upper shadow, with the close near the low, but the lower shadow does not extend
far enough downward to close the gap. That upward thrust suggests the bulls were enthusiastic
about the stock sometime during the day (to force price to gap open higher and climb even more) before the bears appeared and pushed price back down going into the close.
After the candlestick ended, price resumed the downtrend. This scenario -- an upward retrace in a downtrend accompanied by a reversal candle -- is one of the key trading setups for
candles. Price
resumes the downward price trend. It reminds me of crossing a river by swimming with and against the current. If you are not run over by a speed boat, you will likely make it to the
other side, but when swimming with the current, it is safer and faster. Trade reversal candles in which the price trend resumes the primary trend after reversal. Those are the setups
that tend to do well (trading with the primary price trend).
-- Thomas N. Bulkowski
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