A Column for your Backtest
By Dave Mabe
Here are two columns from my column library that most traders aren't capturing in their backtests.
I created these many years ago, and they've been in every backtest I've run since.
The first is what I call dojiness.
You probably know what a doji candle is.
If you look up the definition of a doji you'll find a lot of disagreement about what is or isn't a match - which is pointless.
Anytime you try to reduce some factor to a binary yes/no, that should be a red flag.
This is why I created the dojiness concept. It describes the degree to which a candle is a doji.
Here's the definition:
dojiness = (Close - Open) / (High - Low)
The range of values varies from -1 to 1, with zero being a "perfect" doji (where the open price equals the close price).
A value of 1 means the candle has no wicks and is perfectly green.
A value of -1 means the candle has no wicks and is perfectly red.
When applied thoughtfully, this column often appears as important when I run the Strategy Cruncher on my backtests.
In fact, in one of my strategies, the value of this tells me whether I should go long or short (pretty dang predictive!)
Here are situations where it might be useful in your strategy:
Applied to yesterday's daily candle in an intraday strategy
Applied to the most recent candle before your trading signal
Applied to today's opening range candle
Applied to recent daily action
Like any indicator, it's not a silver bullet, but with some creativity, you can apply it to a strategy in a way that's predictive.
-Dave
P.S. Question: Are you an Amibroker user? I'm looking for some volunteers to beta test something I'm working on. Hit reply and let me know if you're interested.