While playing with the traffic lights (which pays attention to daily Highs and Lows), I needed Buy&Sell signals, so I used that gBS ritual and ...
I decided that it'd be neat to look at Open, High, Low and Close, hence candlesticks, so I ...
>You already did candlesticks, or have you forgotten already.
No, I remember. (See Candlesticks.)
However, candlesticks look at the relationship between Open, High, Low and Close for a single day.
Okay, so here's what we'll do:
I thought it'd be fun to look at these guys for a couple of weeks leading up to a high or low in the stock price chart.
Okay, stare at Figure 1 which shows a Microsoft price chart over the last five years.
On July 25, 2002 there was a dramatic minimum. That's when we'd like to Buy, right?
>Yeah, I see the bright blue section ... in the red circle. So?
So I thought:
"How do the Open, High, Low and Close behave in the two weeks prior to July 25."
So I looked at the candlestick pattern and got Figure 2. See anything interesting?
>Uh ... no.
In the ten days prior to July 25, the candlestick had mostly red down-bars.
Yes, when the Close was less than the Open.
They're in red as opposed to the green up-bars when the Close is higher than the Open, like so:
- We download five years worth of historical, daily prices for some stock.
- We look at the candlesticks and note when, say 8-out-of-10 are red down-bars. That's when we Buy.
- We also look to see when, say 8-out-of-10 are green up-bars. That's when we Sell.
- Then we ...
>Where's the spreadsheet? I don't know why you talk and talk when a picture is worth a thousand ...
Here's a picture of the spreadsheet:
Click on picture to download spreadsheet
You type in some stock symbol and click a button to download the daily data.
The left chart gives the stock price chart over the 5-year period.
There's also a closeup of two weeks worth of candlesticks. That's the chart on the right.
You move this window with the slider.
If you want more than 75% of the candlesticks to be red down-bars or green up-bars, you just type in the percentage.
The left chart then gives the Buy and Sell signals.
>Yeah, I got it.
You'll notice that the Sell signals tend to be near price maxima and Buy signals near the price minima.
>And if I change that percentage? Then what?
You get different signals:
If you only require that 50% of the candlesticks have up- or down-bars over the past ten days, you'll be Buying and Selling practically every day!
>And where's the picture of that?
Just click on the picture of the spreadsheet and play with it yourself !
In order to see if'n the gBS stuff would have worked well (in the past), I've added some extra wrinkles ...
>A fictitious portfolio, right?
Yes. The modified spreadsheet looks like this and there's an Explain sheet that
looks like this.
>And it works like a charm, right?
How would I know? Play ... and decide for yourself.
>Well, at least provide some examples, eh?
Here are some, showing the gBS portfolio (with the places where we
Buy and Sell), using 70% red or green bars
(during the previous ten days):
>Huh? Some are pretty lousy!
Ya win some, ya lose some.
>So what happens if you Buy and Sell at 80%?
Play with it yourself !